November 7, 2014 / 10:34 AM / 4 years ago

Principal to buy AXA's Hong Kong retirement savings unit for $335 mln

HONG KONG, Nov 7 (Reuters) - U.S.-based Principal Financial Group Inc said on Friday it had agreed to buy French insurer AXA SA’s Hong Kong retirement savings business for $335 million in what would be the city’s first pension M&A deal in more than a decade.

In a joint statement, the both companies said the purchase would make Principal Hong Kong’s fifth-biggest retirement savings provider, with $6 billion under management.

Industry experts said the deal was likely to encourage more consolidation in the retirement savings business, which is emerging as a new frontier for life insurers in Hong Kong as the Asian financial hub is now home to a rapidly ageing population, with a higher life expectancy.

HSBC Plc and Manulife Financial Corp control nearly half of all retirement savings assets in Hong Kong, according to J.P. Morgan estimates, making it difficult for smaller units like the one AXA was selling to compete.

“When you are sub-scale, it’s hard to compete. We expect more of such deals to happen as marginal players exit the market,” said a person with knowledge of the deal who declined to be named as he was not authorised to speak to the media.

Principal clinched the deal by paying 11.2 percent of AXA’s asset under management, an attractive multiple that would tempt others smaller players to consider exiting the concentrated market, the person added.

Hong Kong is one of the least developed pension markets in the world, with retirement savings accounting for just 40 percent of GDP, compared with 101 percent in Australia, 84 percent in Canada and 62 percent in Japan, according to a 2013 study by consultants Tower Watsons.

Hong Kong’s pension plans managed HK$542.7 billion ($70 billion) as of June, according to the government data.

Other insurers that had been interested in AXA’s retirement savings business included Fidelity Worldwide Investment, Schroders Plc and Manulife, the person said. All three companies did not respond to emails seeking comments.

Deutsche Bank advised Principal, while J.P. Morgan was the financial advisor to AXA, the person added. J.P. Morgan declined to comment, while Deutsche Bank not was not available for immediate comment.

1 US dollar = 7.7519 Hong Kong dollar Reporting by Denny Thomas; Editing by Miral Fahmy

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