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Exclusive: Prudential eyes full control of China venture, considers U.S. options

By Carolyn Cohn and Sinead Cruise
FILE PHOTO: The logo of British life insurer Prudential is seen on their building in London

By Carolyn Cohn and Sinead Cruise

LONDON (Reuters) - Prudential <PRU.L> is in talks that could lead to it taking full control of its 50:50 joint venture with China's CITIC <0267.HK> and is considering selling some or all of its U.S. business to sharpen its focus on Asia, a source told Reuters.

Changes in January to foreign ownership laws in China have made it possible for the first time for the British life insurer to own all of its CITIC joint venture, a landmark transaction which the source said Prudential was working towards.

Prudential has not made a formal application to increase its ownership yet but is checking the plan would win approval from the Chinese authorities before it submits an application, the source said.

Insiders at the $48 billion (37.01 billion pounds) company say the deal could offer a boost to China as it battles to minimise the economic impact of the coronavirus outbreak that has disrupted travel to the country and put several cities on lockdown.

It would be hard to put a timescale on the approval process for a possible transaction, the source said, adding that the Chinese authorities were capable of acting fast to grant the necessary permissions if CITIC was willing to sell.

"They want foreign investment post-virus," the source said.

Analysts at KBW said they expected Prudential to spend "a few billion" dollars increasing their stake in the venture. The company no longer has any British or European business after splitting off its M&G <MNG.L> insurance and asset management unit last year.

The growth of the middle class in Asian economies and the lack of state retirement benefits have driven demand for private life and health insurance.

Many western insurers have joint ventures in China but the Prudential-CITIC venture is among the largest, with around 20 provincial licences.

Chinese officials have become more welcoming of British and European companies amid Beijing's trade tussle with the United States, the source added.

Insurance sales for Prudential's Chinese business rose 45% in the first half of 2019, and the recent coronavirus outbreak is not seen having much direct impact, analysts said.

Its shares have fallen by 1.5% so far this year but the insurer has low exposure to Wuhan, where the virus originated.

Prudential, which sells insurance in China through 55,000 agents, is opening a technical centre in Shenzhen, in mainland China, where hiring is cheaper than Hong Kong because the cost of living is lower.


JACKSON FOR SALE

In addition to the China plans, Prudential is looking at ways to reduce its ownership of its U.S. business Jackson.

Analysts say there is little logic in Prudential holding onto the business, which has few synergies with its Asian arm.

All options are on the table as Jackson seeks "outside capital", the source said, adding that the business was attracting interest from private equity firms, sovereign wealth funds and Canadian pension funds.

Jackson had an operating profit of 1.9 billion pounds in 2018 compared with 2.2 billion for Prudential's Asian business. New business sales for the United States totalled only 1.5 billion pounds compared with 3.7 billion in Asia.

A dilution of ownership in Jackson would leave the 170-year-old insurer, Britain's biggest, with the vast bulk of its operations in Asia, along with a smaller African business.


(This story corrects typo in the headline)


(Editing by Edmund Blair)