Australia’s AMP is to become the the first foreign company to get a direct stake in a Chinese pension company.
The Australian wealth management group is acquiring a 19.99% stake in China Life Pension Company Limited, the largest pension company in China, for $240 million.
China Life Pension Company was founded in 2006 to provide annuities to state-owned and private enterprises and is one of only five pension insurance companies in China.
It currently has around 850 employees and is majority owned by China Life Insurance Company Limited, the largest listed life insurance group and one of the largest institutional investors in China.
AMP has operated in China since 1997 and has had a formal relationship with China Life since 2005. In August 2009, AMP and China Life signed a Memorandum of Understanding for strategic cooperation.
“This acquisition provides AMP with a strategic foothold in the rapidly growing Enterprise Annuity segment of China’s pension market and also extends our relationship with China Life, a leading global financial services brand,” says AMP Chief Executive Officer Craig Meller.
“AMP has a proud 165 year history and has contributed significantly to the development of the AUD$1.85 trillion superannuation and pension market in Australia, the world’s fourth largest pension savings pool.”
Enterprise Annuities in China are forecast to overtake the equivalent size of the Australian employer sponsored superannuation sector in 2015.
Growth in this market has been around 26% a year during the past five years.
The 65+ age group in China is expected to double over the next 15 years with more than 100 million people entering the age bracket.
China’s Enterprise Annuities market represents the second pillar of the Chinese pension system, a voluntary system provided by the employer.
There are currently more than 66,000 participating enterprises and more than 20 million members.
As part of the transaction, AMP will enter into a business cooperation undertaking to provide technical support to China Life Pension Company.
AMP will nominate two directors to the 11 member board of China Life Pension Company and be positioned as its second largest shareholder and a major strategic partner in this venture with China Life.
AMP forecasts China Life Pension Company, which already holds national licences for trustee services, investment management and account administration, to break even in the next 24 months.
The acquisition is expected to settle in late 2014, subject to regulatory approvals, and is expected to be Earnings Per Share (EPS) accretive to the AMP Group results from 2017.
In September 2013, AMP Capital and China Life Asset Management Company formed a joint venture, China Life AMP Asset Management Company, to offer retail and institutional investors in China access to investments in domestic listed equities and fixed income.
AMP’s 19.99 per cent stake in China Life Pension Company will be funded via existing surplus capital and liquidity facilities.