A "zero-interest" insurance company bond is gaining favor among overseas long-term capital.

On September 13, China Pacific Insurance (Group) Co., Ltd. (hereinafter referred to as "CPIC") completed the issuance of Hong Kong dollar H-share zero-coupon convertible bonds maturing in 2030, raising HK$15.556 billion.

This achievement set multiple records for CPIC, including issuing the largest-scale Hong Kong dollar zero-coupon convertible bond in history and successfully issuing the first negative-yield Hong Kong dollar convertible bond in nearly 20 years.

On September 16, CPIC responded exclusively to reporters that their Hong Kong dollar H-share zero-coupon convertible bond issuance attracted participation from numerous long-term funds, multi-strategy funds, and other internationally renowned investors, achieving multiple-fold oversubscription coverage. Among the final allocated investors, the majority were overseas long-term professional institutional investors.

It was precisely the enthusiastic subscription from overseas long-term capital that enabled CPIC's Hong Kong dollar H-share zero-coupon convertible bond to be issued at 100.15% of the bond principal amount, achieving a premium issuance over the bond's face value.

Similarly, Ping An Group completed the issuance of HK$11.765 billion zero-coupon H-share convertible bonds maturing in 2030 in June, which also received favor from overseas long-term capital.

With one side willing to sell and the other willing to buy, industry insiders believe that the favor for zero-coupon convertible bonds naturally has its inherent logic, with the core being the "convertible" nature of the bonds.

According to multiple sources, companies issuing zero-coupon convertible bonds were previously mainly large internet technology companies such as Baidu and Alibaba, as internet technology companies' stock prices have greater volatility elasticity, attracting various capital to seek stock price appreciation dividends through zero-coupon convertible bond conversions. The issuance of H-share zero-coupon convertible bonds by Chinese insurance companies began gaining momentum this year, with Ping An Group and CPIC successively issuing two zero-coupon H-share convertible bonds.

Hong Chenyi, a Hong Kong private fund manager who has long invested in Hong Kong stocks, pointed out in an interview on September 17 that behind this trend is overseas long-term capital's optimism about the potential for considerable capital gains returns from Chinese insurance companies' H-share zero-coupon convertible bonds after conversion.

Hong Chenyi noted that the main factors supporting the high upward potential of Chinese insurance H-shares over the next 5-10 years include the massive demand for pension and medical insurance brought by population aging, policy support and AI applications accelerating insurance innovation, increasing public demand for insurance driving continuous growth in insurance density and penetration, leading to sustained growth in insurance company performance and rising stock valuations.

According to multiple sources, overseas long-term capital's enthusiastic subscription to CPIC's negative-yield H-share convertible bonds is closely related to its H-shares having a high investment safety margin and significant valuation recovery potential.

Currently, CPIC's H-share price-to-book ratio (PB) is only 1.04 times, representing a relatively low valuation level among Chinese insurance stocks with a high investment safety margin. Additionally, CPIC's embedded value valuation (P/EV, market capitalization/embedded value) is relatively low at approximately 0.53 times, offering significant valuation recovery potential.

Furthermore, overseas long-term capital's enthusiastic subscription to Chinese insurance companies' Hong Kong dollar H-share zero-coupon convertible bonds has another practical consideration—many overseas pension funds and asset management institutions need approval from investment committees before directly increasing positions in Chinese stock assets, which requires considerable time to complete. Therefore, they first establish positions in desired Chinese companies' H-share convertible bonds, wait for investment committee approval, then complete conversions and quickly increase positions in Chinese stock assets.

Long Ge, Associate Director of the Innovation and Risk Management Research Center at the University of International Business and Economics, stated that overseas long-term capital's enthusiasm for investing in Chinese insurance companies' Hong Kong dollar H-share zero-coupon convertible bonds stems not only from insurance H-shares being chronically undervalued with high dividend yields, allowing for higher capital gains after conversion, but also because convertible bonds combine debt floor protection with equity upside potential, making them suitable for overseas long-term capital's strategic positioning in China's insurance market.

However, whether overseas long-term capital can profit from these convertible bond investments depends on whether CPIC and Ping An Group's future stock prices can exceed the convertible bonds' initial conversion prices.

CPIC's Hong Kong dollar H-share zero-coupon convertible bonds set an initial conversion price of HK$39.04 per H-share (subject to adjustment), representing approximately 21.24% premium over CPIC's H-share closing price on September 10 (HK$32.20 per share).

Ping An Group's H-share zero-coupon convertible bonds issued in June set an initial conversion price of HK$55.02 per share, representing an 18.45% premium over the June 3 closing price (HK$46.45).

"Most overseas long-term capital believes that over a 5-10 year investment cycle, the probability of these two insurance companies' stock prices breaking through the initial conversion price is quite high," Hong Chenyi told reporters. Recently, overseas long-term capital has been closely monitoring the sustained pursuit of dividend strategy popular stocks (including banking and insurance H-shares) by southbound funds, the medium to long-term upward trend of Hong Kong stock indices brought by Chinese assets regaining global capital favor, and new development opportunities brought to China's insurance industry by population aging. They generally believe these factors will drive Chinese insurance H-shares to break through initial conversion prices in the near future.

As of the close on September 17, influenced by factors such as Hong Kong stock indices reaching new yearly highs and continued pursuit of dividend strategy popular stocks, CPIC and Ping An Group H-shares closed at HK$35.9 per share and HK$55.75 per share respectively. Notably, Ping An Group's H-share price has exceeded the initial conversion price (HK$55.02 per share), meaning overseas long-term capital could already harvest investment returns if they convert quickly.

However, once overseas long-term capital completes convertible bond conversions, CPIC and Ping An Group will face dividend yield dilution challenges.

Taking CPIC as an example, if all HK$15.556 billion H-share convertible bonds convert at the initial conversion price of HK$39.04, this would add approximately 398 million shares to CPIC, accounting for about 12.55% of CPIC's H-share capital (including convertible bond conversions) and 3.98% of total share capital (including convertible bond conversions). This means CPIC will need to increase dividend amounts in the future to maintain dividend yields at current high levels after share capital increases.

CPIC's H-shares have maintained a dividend yield of approximately 3.55% over the past 12 months.

Hong Chenyi frankly stated that overseas long-term capital is closely watching the latest progress of CPIC's three major strategies: "Great Health & Wellness, AI+, and Internationalization," evaluating whether the implementation effectiveness of these strategies can drive sustained dividend increases, keeping dividend yields above 3.5% long-term.

CPIC representatives disclosed that the funds raised from this H-share zero-coupon convertible bond issuance are intended to support the insurance main business, support the implementation of the three major strategies of "Great Health & Wellness, AI+, and Internationalization," and supplement working capital for general corporate purposes.