Media Reports

Anbang’s Bids for US Hotel Chains Thrown into Doubt

time:2016-04-22 source:Financial Times

                                                              A worker cleans windows of the Anbang Insurance Group's building in Beijing, Wednesday, March 16, 2016. Young, privately owned and ambitious, Anbang Insurance Group stands out in China's staid, state-dominated insurance industry. Founded just 12 years ago, Anbang made a splash in the United States in 2014 with its $2 billion purchase of New York City's Waldorf Astoria Hotel. On Monday, March 14, it went after even bigger game, launching a surprise $14 billion bid with partners for the Starwood hotel chain. (AP Photo/Andy Wong)

Anbang Insurance’s $20bn hotel buying spree has been thrown into doubt by reports that Chinese regulators could block its bids for two big US chains.

Caixin, a respected Chinese financial magazine, reported on Tuesday that the China Insurance Regulatory Commission could invoke a rule that restricts domestic insurance companies from investing more than 15 per cent of their total assets abroad.
The Anbang deals had a “small probability of completion”, one unnamed authority told the Chinese magazine.
Anbang declined to comment.
But people close to the Chinese insurer and its dealmaking played down the report. One said that nothing had materially changed for the Chinese group, which plans to press ahead with last week’s $6.5bn deal for Strategic Hotels & Resorts. Anbang is also evaluating whether to raise its $13.2bn bid for Starwood Hotels & Resorts.
Another person close to the dealmaking said that Anbang believes that CIRC would only become involved if the hotel chain purchases were funded with insurance premiums. If the hotel chains were paid for another way, the deals would not require the regulator’s approval.
Anbang has yet to say how either deal would be financed and is keeping the regulator informed, the person said.
Anbang had sought to gatecrash Marriott International’s agreement to purchase Starwood, but its offer was trumped by a revised bid from Marriott on Monday. Marriott’s offer, valuing Starwood at $13.6bn, was accepted by the target company.
Senior management at the Chinese group is convinced that Starwood has left the “door open” to a fresh bid, according to people close to the matter.
However, the Caixin report raises the possibility that the Chinese regulator could prevent another counterbid by Anbang.
Starwood’s executives are keen to close the deal with Marriott as soon as possible, according to people familiar with the negotiation process between the two US companies.
Anbang’s effort to buy up assets overseas is part of an unprecedented wave of outbound investment from China. Overseas spending by Chinese buyers this year has already reached $102bn, according to Dealogic, just $4bn shy of last year’s total of $106bn.
The company made global headlines in 2014 when it bought the historic Waldorf Astoria hotel in New York for $2bn. Since then Anbang has completed or proposed more than $32bn in mergers and acquisitions. It is unlisted and does not publish financial statements for the group as a whole, so its total assets at present are unknown.
The group is known to have expanded its registered capital from Rmb12bn to Rmb62bn ($9bn) in 2014, or more than 400 per cent, as it took on 31 new investors. Anbang is now the largest insurance company in China based on registered capital.
However, Anbang has gone out of its way to avoid tripping up on domestic regulation that could curtail its outbound investment strategy, experts pointed out.
The company has increased its balance sheet rapidly over the past few years by buying stakes in banks, possibly with the intention of expanding the 15 per cent of total assets that it is allowed to invest abroad, said Wei Hou, a senior analyst at Sanford C Bernstein in Hong Kong.
A regulatory crackdown would also raise questions over the political capital of Wu Xiaohui, Anbang’s chairman. He is connected to sections of China’s ruling elite and married to the granddaughter of Deng Xiaoping, the architect of modern China.
The group has minority stakes in China Merchants Bank, China Minsheng Bank and also took a controlling stake in Chengdu Rural Commercial Bank.
Anbang has also maintained extreme high solvency ratios at some of the insurance companies it controls.
Anbang’s life insurance unit had a solvency ratio of 678 per cent in 2014, according to an unaudited financial statement posted on its website. At a property insurance company it maintained a 5,152 per cent ratio that year. Anbang Annuity Insurance in 2014 touted a solvency ratio of more than 8m per cent.
The high solvency ratios, which average about 200 per cent at other Chinese insurers, were likely meant to help Anbang avoid regulatory scrutiny when investing abroad, said Sam Radwan, partner and co-founder of Enhance International, a consultancy that advises insurance firms in China.


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