(Reuters) - Goldman Sachs (GS.N) has bought a 12 percent stake worth more than $900 million in China's Taikang Life Insurance Co Ltd, giving the Wall Street giant a foothold into the world's biggest insurance market.
Goldman's long-overdue purchase could pave the way for Taikang's planned initial public offering next year, bankers and analysts said, as the insurer seeks more capital to fund its rapid growth in China.
Credit Suisse estimates China's life insurance market --which generated $124 billion premium income in 2009 -- will grow more than 20 percent per annum for the next decade.
But some analysts doubt if Goldman can earn the same big returns that Carlyle Group CYL.UL and TPG Capital TPG.UL reaped from their investments in Chinese insurance companies.
"Goldman has come in pretty late into the game relative to Taikang's planned IPO timeline, so the returns might not be as high as previous investors have got," said Sally Yim, senior analyst of financial institutions group at Moody's.
Carlyle's investment in China Pacific Insurance (Group) Co (2601.HK) is already on course for its best ever exit, after it sold down a $2.6 billion stake over the past few months.
Last year, TPG sold a $2.4 billion stake in China's Ping An Insurance Group Co (2318.HK), which analysts estimate delivered strong profits for the buyout fund.
Goldman is not new to the China insurance industry, having previously bought a stake in Ping An along with Morgan Stanley (MS.N) in 1994. But Goldman is using its balance sheet to buy the Taikang stake, while the previous investment was made through its private equity arm.
Goldman acquired the Taikang stake from French insurer AXA SA (AXAF.PA), which last month said it agreed to sell its 15.6 percent in Taikang to a group of investors for $1.2 billion.
Goldman beat several bidders, including Kohlberg Kravis Roberts & Co (KKR.N), Blackstone Group (BX.N) and Singapore's Temasek Holdings TEM.UL, to win the Taikang auction.
China Guardian Auctions Co. and New Deal TEDA Investment Co., Ltd were the others who bought the shares sold by AXA, the China Insurance Regulatory Commission (CIRC) said on its web site. AXA put its stake on the block nearly two years ago and Goldman was picked as the preferred bidder last year.
The stake purchase was approved by CIRC, Goldman and Taikang said in a joint statement.
Taikang and New China Life Insurance Co. are among insurers which are looking to tap the public market over the course of the next year or so. Taikang has about $44 billion in assets and 54 million clients across China.
"The regulators are a bit reluctant to allow insurance companies to raise subordinate debt to replenish capital. So all these companies are looking to shareholders to help inject capital to support growth," Yim of Moody's added.
(Editing by Michael Flaherty and Muralikumar Anantharaman)