Ping An Group will likely raise its exposure to infrastructure project debt by buying new debt investment products from its fund management subsidiary, as the group looks to lengthen the average duration of its assets in line with the country’s regulatory commands.

Most large insurance companies in China have asset management arms, and the former often invests a lot of assets into products issued by the latter. Ping An Asset Management (Ping An AM) intends to issue new debt investment plans that focus on infrastructure projects, and it is set to sell a substantial amount of them to its parent company, a  Ping An AM spokeswoman told AsianInvestor.

The asset management unit typically creates infrastructure debt investment plans that invest into local government urban development projects, or infrastructure schemes of state-owned enterprises or companies with triple-A ratings, she added.

Between January and June this year, 19 insurance asset managers registered 33 infrastructure debt investment plans worth a combined Rmb78.49 billion (11.54 billion), and 37 real estate debt investment plans worth Rmb60.51 billion.

Insurers have been looking to buy longer dated products, particularly after the then-named China Insurance Regulatory Commission (CIRC) released an overarching framework for asset liability management in March. The new framework pressurised insurers to reduce their duration gaps, or the difference between the average tenor of their assets and liabilities.

China has a relative lack of long-term bonds, so the country’s insurers have had to seek out alternative long-term investments. The debt investment plans have helped fulfil this need.

DURATION GAP REDUCTION

In March, Ping An said the duration of its liabilities was 6.9 years longer than that of its assets. This marked an improvement from an 8.6-year mismatch back in 2013. The group’s allocation to debt investment plans stood at 5.7% of its Rmb2.45 trillion in investable assets as of December 2017. Its net investment yield was 5.8% last year.

China Life, the biggest life insurer in China by assets, said in the same month that it planned to increase its investments in non-standard debt to lengthen its asset duration.

The Ping An spokeswoman declined to comment on how much in new infrastructure debt products its asset management arm intended to issue, or how much the insurance company would buy. But it would not be the first time Ping An AM has issued such products this year.

The asset manager agreed to finance the solid waste treatment business of Hong Kong-listed Capital Environment in March via debt investment plans. The company said in a regulatory filing on July 24 that the scale of cooperation is up to Rmb5 billion.

The investment yield for debt investment plans was estimated to be no less than 6%, Securities Daily reported in early July, citing unnamed sources.

PROPERTY PLAN PLUNGE

Despite the appeal of debt investment products with insurers, the overall supply of the products has been falling, partly due to regulatory clampdown, Zhu Qian, an insurance analyst at Moody’s, told AsianInvestor.

Insurance asset managers are required to register their alternative investment products with IAMAC. Its latest statistics reveal that the total volume of debt investment plans (which both includes infrastructure and real estate debt plans) dropped year-on-year over the first six months of 2018.

While infrastructure debt investment plan issuance rose by 20% during the first half of the year, real estate debt investment plans saw a marked decline. This may have been due to an erosion in the quality of available real estate loans to support products. 

Ping An’s spokeswoman noted that the group would also invest in and issue real estate debt investment plans, but it now has relatively higher requirements for underlying real estate assets. She declined to elaborate.

Insurance asset managers’ registered product sizes (Rmb, bn)    Source: IAMAC

IAMAC’s figures also reveal that the volume of equity investment plans also fell to zero in the first half of the year following the release of new rules that are designed to prevent insurers’ asset management subsidiaries from making “fake equity, real debt” investments, or loan-like equity investments into non-listed corporates.

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