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NEW YORK -- Zurich Group plans to significantly expand its position in the Asian markets with the acquisition of a 24% stake in Peregrine Investments Holdings Ltd., Hong Kong's largest financial services company.
The investment is being made through Zurich Centre Investments, the New York-based private equity unit of the Swiss-based insurance group. Steven M. Gluckstern, ZCI's chief executive officer, said the investment will give Zurich "access to an important platform from which it has the opportunity to further expand its insurance, reinsurance and asset management businesses throughout Asia."
ZCI is paying $200 million for the shareholding. A spokesperson said the aim is to complete the deal "as soon as is practicable" but that it is impossible to give a time frame because of the need to meet Hong Kong stock exchange regulations.
This proposed deal is Zurich's second global expansion move in about a month. In October, Zurich Group agreed to merge its insurance and reinsurance companies and asset management units with the British American Financial Services unit of London-based B.A.T Industries P.L.C. (BI, Oct. 20). They are being merged into a new company to be called Zurich Financial Services Group, which will be 55% owned by Zurich and 45% by B.A.T. Known as ZF Group, it will be one of the largest insurance and asset management companies in the world, though analysts say the motivation behind the merger is to help Zurich achieve greater U.S. market penetration for its financial services business.
Zurich has total assets of $97.5 billion and $262 billion in assets under management, and it would have total assets of approximately $165 billion and $341.8 billion in assets under management after merging with BAFS.
Trevor Petch, European insurance analyst at Robert Fleming Securities in London, said that Zurich's acquisition of a Peregrine stake, while small in terms of Zurich's overall operations, nevertheless "absolutely fits Zurich's acquisition criteria."
He said he sees it as a "long-term positioning" for Zurich in Asian markets where Peregrine's "sharp focus and synergies between the two groups should benefit Zurich's insurance and financial services operations in the longer term."
Peregrine has been a fast-growing company over the past few years and is now one of the largest independent investment banking groups in the Far East outside Japan. Its core businesses are equity products, fixed-income products, direct investments, asset management, and property investment and development. In 1996, Peregrine made a pretax profit of $1.0 billion Hong Kong ($129.3 million), and at the end of last year its shareholders' funds totaled $867 million Hong Kong ($112.1 million). Peregrine has 33 offices in 15 Asian countries, as well as in London, New York, San Francisco, Munich and Zurich. In 1996 and the first nine months of 1997, it had the largest book of Asian equity issues.
However, Peregrine has been hit by the recent turmoil in Asian markets and last month warned that profits would be lower than in the previous year. At the same time, it denied rumors it was having financial difficulties.
"Despite the obvious recent turmoil in the capital and currency markets in the region, we have confidence in the long-term growth prospects and ultimate economic strength of Asia," Mr. Gluckstern said. Peregrine is "a company with a strong market presence, a broad array of investment and capital markets services, and excellent regional knowledge and relationships."
Philip L. Tose, Peregrine's chairman, said he was "extremely pleased" with ZCI's involvement, adding that it "not only strengthens our substantial capital base but also deepens our relationship with a well-respected, multinational company that brings to Peregrine extensive financial services knowledge and technical expertise."
Separately, ZCI and Peregrine are each investing $50 million and jointly sponsoring an Asian-focused private equity fund. They expect to raise $350 million to $500 million from investors over the next six months.
Known as the Peregrine Direct Investment Fund, it will invest in a diversified portfolio of commercial and industrial businesses throughout Asia.
ZCI's investment in Peregrine, which is subject to approval by Peregrine's shareholders, comes at a time when a number of insurers and reinsurers are positioning themselves with better footholds in burgeoning Far East markets.
Mr. Tose will continue as Peregrine's chairman and Francis Leung as its group managing director, while its board will be enlarged to nine, to include three ZCI representatives.
Also last week, Gerling Globale Rueck, the reinsurance unit of Germany's Gerling Group, unveiled plans to develop its Far East operations.
It will open a Shanghai branch in 1998 and an office in Taipei, Taiwan, in cooperation with Cathay Life. It expects the offices to write mainly property/casualty business.