HONG KONG (Reuters) - China will not allow conglomerates to use their insurance arms as financing platforms, the sector regulator said, in an apparent warning to companies in a rare and high-profile takeover battle involving insurers.
Baoneng, using its two insurance units as funding platforms and tapping shadow lending options, has built up a stake of 25 percent in China Vanke, the largest developer, raising expectations of a hostile takeover.
Vanke and Baoneng received notices on Thursday from China's securities regulator for violating disclosure regulations on shareholding changes at the property development company.
Some Chinese firms ignore rules and don't maintain adequate supervision of their insurance units, using them as "automated teller machines", Xiang Junbo, chairman of the China Insurance Regulatory Commission, said in Beijing on Thursday.
They use insurance as a low cost financing tool and use "high-risk methods" in order to expand immediately, which is against the principles of the insurance business, he said, adding this could lead to risks if not dealt with actively.
Besides the Vanke takeover battles, little-known Chinese insurance companies with limited foreign buyout experience have in recent months stepped up a hunt abroad for non-yuan assets, prompting investors and ratings analysts to express concern.
Last month the official Shanghai Securities News reported, citing unnamed sources, that China's insurance regulator had launched an inspection of insurers' risk controls over stock, private equity and real estate investments.
Insurers in the world's second-largest economy have reported strong profits even as wider economic growth stutters and analysts warn about riskier investments.