AMP Limited, Australia and New Zealand’s leading independent wealth management business, announced it has agreed to acquire a 19.99 per cent stake in China Life Pension Company Limited, the largest pension company1 in China.

The acquisition, for a total consideration of AUD$240 million, makes AMP the first foreign company in the world to purchase a stake in a Chinese pension company with three licences allowing end to end services throughout China.

China Life Pension Company was founded in 2006 to provide enterprise annuities (EA) products 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, China’s largest listed life insurance group2 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,” said 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.

“Having had a successful venture in funds management from last year, we look forward to sharing our expertise in corporate superannuation and investment management to help grow China Life Pension Company’s business in a market where we see significant growth potential.”

Enterprise Annuities in China are forecast to overtake the equivalent size of the Australian employer sponsored superannuation sector in 20153. Growth in this market has been around 26 per cent per annum during the past five years and is expected to be aided by a significant ageing of China’s population with the 65+ age group anticipated to double over the next 15 years, as over 100 million people enter this 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 over 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. EPS dilution will not be material in 2015 and 2016 to AMP Group.

“This strategic investment by AMP is a significant moment in the history of China Life Pension Company’s development and is another important milestone event following the establishment of China Life AMP Asset Management Company, between China Life and AMP, in 2013,” said China Life Insurance Group Chairman Yang Mingsheng.

“This marks a new chapter of transformation for China Life in the diversification of its equity base, internationalising its business and making its operations more market-orientated. China Life Pension Company will become an indispensable driver of new growth for China Life Group’s business development strategy and provide a significant contribution to the Chinese social security system.”

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.

The asset management venture launched its first mutual fund in January 2014, followed by three other funds during the year, and is already in the top third of fund management companies in China. The venture’s Money Market fund has raised AUD$3.8 billion to date. AMP Capital holds a 15 per cent stake in the asset management venture.

Consideration for AMP’s 19.99 per cent stake in China Life Pension Company will be funded via existing surplus capital and liquidity facilities. It is anticipated the transaction will reduce the surplus capital over minimum regulatory requirements of AMP Life Limited (the acquirer) and consequently AMP Group by approximately AUD$180 million.

1Largest pension insurance company by AUM
2China Life Insurance Company Limited is China’s largest listed life insurance group by market capitalisation
3Macquarie (June 2014) and DEXX&R (May 2013) projections