People walk past an entrance to the Anbang Group's offices in Beijing, June 14. (AP Photo/Mark Schiefelbein)People walk past an entrance to the Anbang Group's offices in Beijing, June 14. (AP Photo/Mark Schiefelbein)

In a move that stunned New York dealmakers at the time, the famed Waldorf-Astoria Hotel on Park Avenue was sold in 2014 to a little-known Chinese company.

That Chinese company is Beijing-based Anbang Group, an insurance conglomerate known for its aggressive overseas asset purchases, including a failed 2016 bid to acquire Starwood Hotels and Resorts. At the time, Chinese companies were engaged in a global takeover spree, and Anbang appeared to be leader of the pack.

Merely a year later, the once high-flying Anbang is suddenly grounded.

Anbang billionaire chairman Wu Xiaohui has been detained by Beijing authorities. And several Chinese state-owned banks were told to stop their dealings with the company, sources told Bloomberg on June 15. Its more than 30,000 employees and nearly $300 billion of assets are left hanging in the balance.

On June 9, Beijing anti-corruption investigators detained Wu, according to the Financial Times. While it is yet unclear if the Central Commission for Discipline Inspection will announce a formal investigation of Wu, he is certainly the highest-profile business executive reeled in so far by Chinese leader Xi Jinping’s sweeping anti-corruption efforts.

Anbang’s Meteoric Rise

In a short time, Anbang has risen from relative obscurity to become one of China’s largest holders of foreign assets. Before its activities were curtailed recently, Anbang had become well known among Western private equity firms and real estate moguls as a competitive bidder for assets.

Wu and Anbang have cultivated extensive business and political connections abroad. Wu is known to be close to Jonathan Gray, head of real estate at U.S. private equity giant Blackstone Group. A few of Anbang’s recent asset acquisitions have been bought from Blackstone. Wu was also in discussion to acquire a stake in the Manhattan office tower owned by Jared Kushner, son-in-law and senior advisor of President Donald Trump, but the deal was called off in March.

Today, Anbang’s portfolio of well-known foreign assets includes the Waldorf-Astoria Hotel, the 717 Fifth Avenue building in New York, the Chicago-based Strategic Hotels & Resorts Inc., Belgian insurer Fidea, Belgian bank Delta Lloyd, and a controlling stake in South Korean insurer Tongyang Life Insurance.

Anbang_holdings

List of major foreign asset holdings of Anbang Group, as of June 1, 2017 (The Epoch Times)

‘White Gloves’

Anbang’s sudden fall seems as startling as its rapid ascent. What caused the disgrace of Wu Xiaohui, who led a conglomerate described by the Financial Times in 2016 as “one of China’s most politically connected companies?”

In China, business is always driven by politics. And Wu’s political network could very well landed him in trouble. 

Wu was in discussion to acquire a stake in the Manhattan office tower owned by Jared Kushner.

Wu’s background, like many other Chinese tycoons, is relatively obscure. Born in Wenzhou, Zhejiang Province, Wu founded Anbang as a small insurance company in 2004. His fortunes elevated after marrying Zhuo Ran, a granddaughter of former Chinese Communist Party (CCP) leader Deng Xiaoping.

Overseas Chinese language media and sources of this newspaper note that Wu and Zhou are now divorced, although Wu and Anbang have publicly denied such reports.

Wu, 50, is believed to be a close ally of an influential political faction that is in opposition to the Xi leadership. Jiang Zemin was head of the CCP for over a dozen years (1989–2002) and continued holding sway over the Chinese regime through a network of cronies for another ten years (2002–2012). Since coming to office in 2012, Xi Jinping has waged a battle to uproot the influence of Jiang and his faction. 

Sources close to Zhongnanhai, the central headquarters of the CCP, told The Epoch Times that Anbang and Wu have close ties to the family of Zeng Qinghong, the former Chinese vice premier, member of the powerful Politburo Standing Committee, and longtime confidant of Jiang.

The source said that both Wu and Xiao Jianhua—the Chinese billionaire and Tomorrow Group owner who was abruptly brought back to Beijing from Hong Kong for investigation earlier this year—are key “white gloves,” or money launders, of the Zeng family and the Jiang faction.

The source added that Wu and Xiao used financial transactions to funnel and launder funds abroad on behalf of the Jiang faction, while at the same time parlaying their roles as business tycoons to spy on and influence foreign dignitaries.

There are questions surrounding the sources of Anbang’s capital. The company was founded in 2004 as a small insurer with a mere 500 million yuan ($73 million) of capital and eventually became a behemoth with assets of almost 1,971 billion yuan ($292 billion).

Anbang’s capital suddenly swelled in 2014, with a number of mysterious investors injecting a total of 50 billion yuan into the company. Research by Caixin, a respected mainland business magazine, found that some of Anbang’s 39 investors are obscure outfits such as auto dealerships, real estate firms, and mine operators that sometimes use shared mailing addresses, many of whom are connected to Wu. There’s also a trend of major state-level investors scaling back their ownership, with SAIC Motor Corp. and Sinopec decreasing their ownership levels from 20 percent each to 1.2 percent and 0.5 percent respectively.

Waldorf_hotel_17

The Waldorf-Astoria hotel is shown January 17, 2005 in New York City. (Spencer Platt/Getty Images)

The insurer also relies on fundings from selling risky wealth management products called universal life policies. These products offer high interest rates and are a hybrid bond and a life insurance policy, have been extremely popular with consumers dissatisfied with bank deposit rates of around 1 percent.

Crackdown on ‘Barbaric’ Insurance Sector

Xi Jinping has made reforming the financial industry a core focus this year. At a speech on March 21, Premier Li Keqiang urged authorities to take powerful measures to prevent corruption in the financial sector, which is vulnerable to the advent of shadow banking, bad assets, and illegal internet financing, according to state-controlled media Xinhua.

Xi has also shown he’s unafraid to challenge captains of industry with extensive political connections. Wu’s detention is the latest in a string of recent disciplinary actions taken against high ranking officials within the financial industry, and thus far, with the insurance sector as ground zero. In February, chairman of financial conglomerate Baoneng Group Yao Zhenhua was banned from the insurance industry for ten years. In April, the former head of China Insurance Regulatory Commission (CIRC) Xiang Junbo was placed under investigation.

Sources close to Zhongnanhai have told The Epoch Times early this year that the Xi leadership is focusing on tackling corruption in the Chinese financial industry in 2017. 

China’s insurance industry has garnered immense power—and controversy—during the last six years, a period of deregulation overseen by its former chief regulator, Xiang, currently under official investigation.

From 2012 to 2016, China’s insurance sector grew 14.3 percent overall, and non-life insurance grew 16.5 percent in premium volume, according to data from Munich Re. Last year, China overtook Japan to become the world’s second biggest insurance market by premiums.

During this period, the insurance sector has turned into a den of corporate raiders.

Insurers are traditionally bastions of conservatism, holding stable assets such as government securities and corporate bonds. Insurers by nature must consider preservation of their clients’ capital as paramount. These assets are also liquid and can be easily sold to pay back policy-holders.

Flush with cash from universal life policies, Chinese insurers embarked on a spending spree, amassing portfolios of risky assets not typically associated with insurance, such as stocks, real estate, and foreign companies. Such assets are risky and illiquid, and could impede an insurer’s ability to repay holders during times of distress.

The insurers most closely associated with such practices are Evergrande Life, Foresea Life—a unit of Baoneng—and Anbang. These companies’ business model closely resemble a private equity fund, where capital is expensive and investment returns are the main focus.

Last year, Foresea and Evergrande amassed a large stake in residential real estate developer China Vanke. A public and protracted dispute to wrest control of Vanke from founder and CEO Wang Shi—one of China’s most famous entrepreneurs—ensued, creating a market firestorm that was finally dispelled after Beijing intervened in December.

In late 2016, China’s insurance regulator criticized the entire domestic insurance industry, calling its aggressive purchases of Chinese companies “barbaric.” Wang Shi also portrayed Foresea’s stock accumulation as “barbarian,” a reference to the 1989 book “Barbarians at the Gate” about the hostile takeover of RJR Nabisco by private equity giant Kohlberg Kravis Roberts & Co.

In just six months, Xi has replaced China’s top insurance regulator, banned the sale of universal life policies, and for now, seemingly brought a wild industry to its heels.

But years of free-wheeling cannot be corrected overnight.

Foresea, which depends on cash from sales of universal life products, issued a warning last month of financial difficulties leading to potential social unrest from its customers unless regulators lift the ban on such products. In a letter to regulators, Foresea called for a lifting of ban “to avoid mass riots by clients, causing systemic risks and much damage to the wider industry.”

Reference to “mass riots” is anathema to the CCP and a potential challenge to the Xi leadership. The insurance industry, in the end, may not give up without a fight.

Read the full article here

Anbang Insurance Group's headquarters in Beijing, March 16, 2016. (AP Photo/Andy Wong)Anbang Insurance Group's headquarters in Beijing, March 16, 2016. (AP Photo/Andy Wong)

Beijing’s recent decision to crack down on activities of Chinese insurance companies could push insurers toward riskier asset investments and create a liquidity crunch within the industry.

Industry regulator China Insurance Regulatory Commission (CIRC) announced strict new rules late December, curbing an industry that has been flush with cash. The new rules are choking a main source of funding and growth for insurers by lowering their allowed investments into stocks (to 30 percent), and barring insurance companies from using customer deposits to fund large equity purchases.

The regulations come after a period of unprecedented growth for the Chinese insurance industry. From 2012 to 2016, China’s insurance sector grew 14.3 percent overall and non-life insurance grew 16.5 percent in premiums volume, according to data from Munich Re. Last year, China overtook Japan to become the world’s second biggest insurance market by premiums.

Traditionally, insurers are considered to be bastions of security by holding conservative assets such as government securities and corporate bonds.

But not in China. Sensing opportunity in a low interest rate environment, Chinese insurers have expanded outside of traditional insurance activities. They have been the biggest issuers of wealth management products called universal life policies. These products, which offer high interest rates and are a hybrid between a bond and a life insurance policy, have been extremely popular with consumers dissatisfied with bank deposit rates of around 1 percent.

Flush with cash but saddled by promises to pay high yields, Chinese insurance companies poured money into assets not traditionally associated with insurers. These firms took large positions in Chinese publicly listed companies and snapped up overseas assets including foreign companies and real estate.

For example, Evergrande Life—a unit of property developer China Evergrande Group—saw its premiums increase more than 40 fold in 2016. It used the proceeds to accumulate a significant stake in rival developer China Vanke last year.

As an industry, insurance has been a major driver of Chinese foreign acquisitions. Anbang Life is at the forefront of such purchases. It made headlines in 2015 for purchasing New York’s Waldorf-Astoria hotel for nearly $2 billion. In 2016, it bought Strategic Hotels & Resorts from Blackstone Group for $6.5 billion. Most recently, Anbang has been in negotiations to purchase U.S. life insurer Fidelity & Guaranty Life for $1.6 billion, a deal which has been put on hold for New York insurance regulatory review. Anbang’s biggest gambit was a failed $14 billion bid to acquire Starwood Hotels & Resorts Worldwide.

Riskier assets—such as equities—accounted for 49 percent of the insurance industry’s assets at the end of November 2016, a 27 percent increase from the end of 2013, according to a report by Moody’s Investors Service.

As an industry, insurance has been a major driver of Chinese foreign acquisitions.

“In particular, the industry’s rising exposure to single-name equity investments is increasing concentration risk, and leaves the insurers’ profitability and capital profiles sensitive to capital market movements,” analyst Kelvin Kwok wrote in the Moody’s note.

Cashflow Problems

Chinese regulators are concerned about the size of stock investments on insurers’ balance sheets. Such stock investments are risky and volatile, and could put depositors’ capital at risk.

CIRC’s fears are not unfounded.

Traditional insurers manage their business by attempting to match projected payouts of liabilities—such as annuities and insurance payouts—with assets whose cash inflows are stable and predictable enough to fund the outflows.

But the explosive growth of universal life policies, and the insurers’ acquisitions of riskier, longer-dated assets, throw this model out of the window. Insurers such as Evergrande Life have marketed universal life policies with very high yields (up to 8 or 9 percent). And to attract even more customers, these products often have no penalty for early withdrawal.

As such, insurers are forced to buy riskier assets to grow their capital enough to fund such high promised returns. But with insurers holding such large stakes in Chinese listed companies, if depositors withdraw their capital en masse, it could suddenly force the insurers to sell their stakes and cause the stock market to plunge.

China Life holds a 44 percent stake in China Guangfa Bank and a 30 percent stake in Sino-Ocean Group. Foresea owns large stakes in Gree Electric Appliances and China Vanke. If they are forced to sell their stakes, the Chinese stock market could see a sudden downturn.

Insurers such as Anbang, which owns several entire foreign companies, has trapped cash and will find it even more difficult to raise money quickly.

This means that to stay liquid, insurers are forced to sell more universal life policies in the short term—with new proceeds used to pay interest on existing policies.

But that source of capital is quickly drying up, and a liquidity crunch could ensue. Anonymous sources told Chinese-based 21st Century Business Herald that is CIRC is preparing to block sales of certain universal life policies entirely. The CIRC temporarily suspended a handful of insurers late December, including Evergrande and Foresea, from selling universal policies over the internet.

Buyers of new policies are finding the returns have lowered. Marketing a 4.7 percent return on a two-year universal product, an Anbang customer service agent in Shanghai told a reporter from the South China Morning Post, “It could be the highest return on the market nowadays. Next time you come, you might not get hold of a product with no fees on early surrender of two years.”

Some insurers have already felt the squeeze. Evergrande Life, according to regulatory filings, reported that its solvency rate dropped from 180 percent to around 110 percent at the end of 2016.

Solvency rate of 100 percent is the minimum threshold for insurers in China.

Read the full article here

Investors watch price movements on screens in Beijing Feb. 22. China's insurance regulator said risky stock market bets by domestic insurers undermines market stability. (Greg Baker/AFP/Getty Images)Investors watch price movements on screens in Beijing Feb. 22. China's insurance regulator said risky stock market bets by domestic insurers undermines market stability. (Greg Baker/AFP/Getty Images)

NEWS ANALYSIS

Beijing has cracked down on domestic insurers, suppressing the industry over what regulators have recently deemed speculative investments. The move hurt insurance stocks, driving down the Shanghai Composite Index 3 percent in the week ended Dec. 15.

It’s a move that further cements China’s “Wild West” business reputation: the landscape is mostly lawless, but you never know who will ride into town to spoil the party.

Chen Wenhui, vice-chairman of the China Insurance Regulatory Commission (CIRC) announced stricter regulations over the industry on Dec. 13, including lowering the ratios of equity to be held, and barring insurance companies from using insurance deposits to fund equity purchases.

Chen denounced the insurance companies for making speculative stock market bets and disrupting market stability, according to an editorial in the Communist Party mouthpiece People’s Daily. In addition, CIRC launched investigations into two privately-held insurance giants—Evergrande Life Insurance and Foresea Life, a unit of insurance giant Baoneng.

Beijing has been closely monitoring insurance companies’ activities for months. Their highly leveraged asset purchases are risky and if stock prices fall, their fortunes could quickly unravel.

But the timing and nature of the crack down is intriguing. For one, Beijing has been attempting to restrict the outflow of cash, and insurance companies have been a major agent of foreign asset acquisitions in the last twelve months. At the same time, CIRC’s investigation into two specific insurers may be driven by an entirely different motive.

Stemming the Outflow

Chinese insurance companies are flush with cash from selling so-called “universal life” products, a high-yielding hybrid product combining death benefit and investments. Foresea’s “universal life” products, for example, promise returns of between 4 to 8 percent. To fund the high returns, insurance companies have been leveraging up to purchase assets both within China and abroad.

As an industry, insurance has been a major driver of foreign acquisitions. Anbang Life is at the forefront of such purchases. Anbang made headlines last year for purchasing New York’s Waldorf-Astoria hotel for nearly $2 billion. Earlier this year, it bought Strategic Hotels & Resorts from Blackstone Group for $6.5 billion, and most recently, Anbang has been in negotiations to purchase around $2.3 billion of Japanese residential real estate assets, also from Blackstone. Anbang’s biggest gambit this year was its failed $14 billion bid to acquire Starwood Hotels & Resorts Worldwide.

The timing and nature of the crack down is intriguing.

Fosun is another conglomerate which funds asset purchases from insurance subsidiaries. Fosun has a diversified portfolio of foreign assets, including well-known foreign assets such as vacation resort operator Club Med, circus performance troupe Cirque du Soleil, accessory maker Folli Follie, women’s fashion label St. John, and downtown Manhattan skyscraper One Chase Manhattan Plaza.

Cash leaving the country has accelerated yuan’s devaluation. But perhaps of greater concern for Chinese authorities is liquidity and cash leaving the nation’s banking system. China’s banks already face high delinquency rates and receive regular liquidity injections from the central bank. While official non-performing loan ratios at major banks are low (around 2 percent), true delinquency rates—which affect banks’ cash and liquidity—are estimated at between 20 to 30 percent.

Restricting insurance companies’ ability to generate cash—which could be used to fund foreign acquisitions—therefore indirectly limits cash withdrawals and preserves liquidity at Chinese banks.

Beijing Intervenes in Vanke

Outside of general restrictions on insurers’ activities, CIRC’s crackdown on Evergrande and Foresea are the most severe.

Regulators barred Foresea from issuing “universal life” policies which made up almost 90 percent of the firm’s premiums. Foresea has used such premiums in recent months to increase its ownership in a number of high-profile Chinese companies.

CIRC also banned Evergrande Life, the insurance unit of major property developer China Evergrande Group, from investing in equity securities. In an announcement on its website, CIRC said Evergrande’s “asset allocation plan is not clear, and its capital funding operations are not standardized.”

Beijing’s decision to intervene in Foresea and Evergrande is interesting, given that the two insurance giants are both major shareholders of China Vanke, a major residential real estate developer. Evergrande and Baoneng both own major stakes in other Chinese companies, but Vanke is the most public and well-known.

Baoneng—through Foresea and several other subsidiary insurers—is Vanke’s biggest shareholder and has been locked in a protracted dispute to wrest control of the company from Vanke founder and CEO Wang Shi, one of China’s best-known and earliest entrepreneurs.

Last week, CIRC criticized the entire domestic insurance industry, calling its recent investments into other Chinese companies “barbaric.” The tone and characterization is similar to Wang Shi’s portrayal earlier this year of Baoneng as “barbarian,” a reference to the book “Barbarians at the Gate” about the 1988 hostile takeover of RJR Nabisco by private equity giant Kohlberg Kravis Roberts & Co.

Evergrande is another top shareholder in Vanke and has been building up its shares quickly over the last few months. Its intentions so far are unclear, but Evergrande’s parent is poised to overtake Vanke as China’s biggest residential developer in 2016.

Both companies could demand board seats at Vanke’s shareholder meetings in March 2017, which could determine the fate of Wang Shi.

And here’s where Beijing steps in as Wang’s white knight. Wang is a celebrity with a rock star-like reputation, and one of China’s first-generation entrepreneurs who is synonymous with the rise of Shenzhen as a business hub. Since founding the company in 1984, Wang carefully managed his relationship with local and regional Communist party organs. Vanke largely followed party blueprints to develop and build homes and apartments across China during the real estate boom, and is said to have a wealth of Communist Party connections.

To Western observers, the Vanke takeover battle seems routine. Activist investors such as Carl Icahn and Daniel Loeb shaking up corporate boards is commonplace in the United States. But the showdown over Vanke is a rarity in the Chinese markets, where the ruling Communist Party craves stability and control above all.

In recent years, regulators have increased rhetoric about letting free-market forces play a more decisive role in shaping the country’s financial markets. Analysts had been wondering how the Chinese regime would handle a possible downfall of one of China’s most successful businessman, which will reveal much about its market intentions.

It looks like we have our answer—CIRC’s crackdown on Vanke’s top shareholders will likely stop Baoneng and Evergrande’s further advance. 

Read the full article here

News Analysis
China Anbang Insurance Group’s sudden withdraw of its $14 billion bid for Starwood Hotels raises questions about Anbang’s source of financing, business model, and standing with the Chinese Communist Party regulators.
Anbang’s all-cash offer should be more attractive to shareholders on paper, but a person with knowledge of the deal told the Financial Times last week that Anbang had failed to demonstrate it had the necessary financing to back up the all-cash bid.
Starwood indicated that it was comfortable Anbang had the financing in place for its latest offer. But with Marriott likely preparing a sweetened bid should Anbang’s latest offer have stood, it was unclear if Anbang’s consortium—which also includes private equity firms J.C. Flowers and Primavera Capital Ltd.—would have been able to arrange enough financing to increase the bidding.
Circumventing Regulators
Information from China paints a different, and more convoluted, picture.
The China Insurance Regulatory Commission (CIRC) was considering blocking Anbang’s acquisition of Starwood, due to Chinese regulations barring domestic insurance firms from owning more than 15 percent of its assets in foreign investments.
Anbang already has a roster of foreign assets. It owns overseas insurance companies such as Iowa-based life insurer Fidelity & Guaranty Life, Belgian property-casualty insurer Fidea, and South Korea’s Tongyang Life Insurance. Last year it paid $2 billion for the Waldorf-Astoria Hotel in New York.
CIRC calculates foreign holding limit by using insurance assets only, and Anbang’s insurance assets are comparatively small. Out of its $293 billion (1.9 trillion yuan) of assets as of 2014, only $50.8 billion relate to life, property, and casualty insurance, capping its foreign holding at around $7.7 billion.
But something doesn’t add up.
Regulatory difficulties seem like an excuse—they have never been a problem for Anbang’s Chairman Wu Xiaohui. He is the grandson-in-law of the former Chinese Communist Party leader Deng Xiaoping, and Anbang recruits among former senior party officials.
A Chinese investment bank said Anbang intentionally reshuffled shareholder registrations over the years in order to skirt CIRC rules on insurance company ownership, according to Caixin, a Chinese financial magazine. CIRC rules state that a single investor could not hold more than 20 percent of any insurance company.
Caixin’s research also found that some of Anbang’s 39 investors are obscure outfits such as auto dealerships, real estate firms, and mine operators that sometimes use shared mailing addresses, many of whom are connected to Chairman Wu. Most of the investors bought their stakes in 2014 and together injected 50 billion yuan into the company. There’s also a trend of major state-level investors scaling back their ownership, with SAIC Motor Corp. and Sinopec decreasing their ownership levels from 20 percent each to 1.2 percent and 0.5 percent respectively.
A Chinese investment bank said Anbang intentionally reshuffled shareholder registrations.

When Anbang raised its offer to Starwood to $82.75 per share, Wu was telling Chinese media that the insurance company had around 1 trillion yuan to deploy, signaling Anbang’s global ambitions were hardly sated.
With the company seemingly treating regulators as a nuisance to be brushed aside, why would a foreign investment limit from the CIRC suddenly stop Anbang in its tracks?
Uncertain Business Model?
Anbang has snapped up market share from rivals by offering the highest returns for its policyholders.
The biggest portion of Anbang’s premium revenues comes from sales of so-called universal insurance policies, a combination of death benefit payout and an annuity with guaranteed payments during a policyholder’s life. Another driver of the company’s recent success is Anbang’s decision to capitalize on the popularity of wealth management products that offer high yields while maintaining short maturities.
None of this is out of the ordinary, as many Chinese insurance companies offer similar products, though few can match the returns promised by Anbang. What’s strange is Anbang’s investment model, which deviates from most insurers.
Insurance companies typically buy into low risk, highly liquid financial securities such as government bonds and investment grade corporate debt. The reason for this is twofold—insurance companies’ No. 1 mandate above all else is to preserve their capital (which is the definition of “to insure”), and since payouts caused by deaths and natural disasters are unpredictable, fixed-income instruments such as bonds offer a stable and secure cash flow over time to cover such liabilities. In effect, a big challenge for any insurer is cash-flow matching, which is having the liquidity profile to cover payouts (cash outflows) with cash inflows generated from investments.
But Anbang completely upends this model. Its assets are real—banks, hotels, and companies—and long term investments. While they generate far higher returns than bonds, they are illiquid and unstable.
Of course, Anbang may have little choice but to swing for the fences. Its policyholders have to get paid, as wealth management products average 7 percent yields, and it must pay its brokers. Its tangled web of owners registered across China also demand returns on equity.
Anbang’s Starwood exit could be a matter of industry regulators putting the brakes on Anbang’s policyholder-financed spending spree. Or it could be Chinese Communist Party politics, as some of its executives were former party officials. Given the meteoric rise, it’s clear Anbang enjoyed past support from Beijing at each step of the way.
But such support could prove fleeting, depending on which side of the Xi Jinping fence Anbang’s executives reside.
More clarity will come soon enough, when we find out how quickly and effectively Anbang is able to deploy its “1 trillion yuan” of capital going forward.
MORE:Chinese Insurer Anbang Walks Away From Starwood DealAnbang Firms Up Its Offer for Starwood

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Anbang pulled its $14 billion takeover bid for Starwood Hotels on March 31. The surprising move will put an end to the recently escalated bidding war between Chinese insurer Anbang and the U.S. hotelier Marriott.
“The Consortium has informed Starwood that, as a result of market considerations, it has withdrawn its non-binding proposal to acquire all of the outstanding shares of common stock of Starwood for $82.75 per share in cash and does not intend to make another proposal,” said Starwood in a statement. 
A consortium led by Anbang made several attempts to break up Marriott’s merger plan by making a series of higher offers for Starwood. 
In its latest shot on March 28, Anbang raised the bid to $82.75 per share in cash. This valued Starwood at $14 billion against Marriott’s $13.6 billion proposal.
Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) shares fell as much as 4.5 percent to $79.65 in extended trading. Marriott International, Inc.(NASDAQ: MAR) shares also dropped by 5.02 percent.
Both Mariott and Starwood signed an amended merger agreement after Mariott sweetened its bid for Starwood on March 21. Starwood shareholders are scheduled to vote on Marriott’s cash-and-stock bid on April 8.
Starwood has about 10 brands including St. Regis, W, Westin, and Sheraton. If the merger goes through, it will create the world’s largest hotel company. Marriott is confident it can achieve $250 million in annual cost synergies within two years after closing the Starwood deal.
Other consortium members acting together with Anbang in the Starwood deal were the two private equity firms J.C. Flowers & Co. and Primavera Capital Limited.
Founded in 2004, Anbang made a surprising move in the United States last year by acquiring New York City’s iconic Waldorf Astoria Hotel. The company has aggressively taken billions out of China and invested them in insurance companies in the United States, Belgium, the Netherlands, and South Korea. 
It also offered $6.5 billion to buy Strategic Hotels & Resorts Inc., which owns several high-end properties including the JW Marriott Essex House in New York and Hotel Del Coronado in San Diego.
Anbang has close ties to the Chinese Communist Party. The chairman of Anbang, Wu Xiaohui, is the grandson-in-law of the former leader of the Chinese Communist Party, Deng Xiaoping. 
The company also has a complicated ownership structure with multiple layers of holding companies registered all around the country, according to a Wall Street Journal report. Several Wall Street banks could not get internal clearance to pursue work with Anbang in the past, partly because of its opaque ownership structure.

Read the full article here

The bidding war to acquire Starwood Hotels intensified after Chinese insurer Anbang raised its offer on Monday, March 28. The new offer is likely to threaten Marriott’s merger plan with Starwood.
Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) announced on Monday that it received a revised non-binding offer from the consortium led by Anbang Insurance Group. The offer is likely to lead to a “superior proposal” and allow Starwood to engage in discussions with the consortium, according to the company’s press release.
The consortium revised its bid to $82.75 per share in cash, an increase from the $78 per share proposal made on March 18. This tops Marriott’s latest bid on March 21, which was valued at $79.53 (in cash and stock). 
Anbang’s new offer raised the value of Starwood to $14 billion, Marriott’s offer was $13.6 billion.
Marriott International, Inc.(NASDAQ: MAR) reaffirmed its commitment to acquire Starwood on Monday and stated: “The combined company will offer stockholders significant equity upside and greater long-term value driven by a larger global footprint, wider choice of brands for consumers, substantial revenue synergies, and improved economics to owners and franchisees leading to accelerated global growth and continued strong returns.” 
In its statement, Marriott also questioned Anbang’s ability to finance the transaction and get the necessary regulatory approvals: 
“Starwood stockholders should give serious consideration to the question of whether the Anbang-led consortium will be able to close the proposed transaction, with a particular focus on the certainty of the consortium’s financing and the timing of any required regulatory approvals.” 
Starwood, the owner of St. Regis, W, Westin, and Sheraton brands, will have to pay Marriott $450 million to break up the merger arrangement. 
Both Marriott and Starwood announced they had agreed to merge in a cash and stock deal that would value Starwood at $12.2 billion last November. Both companies signed an amended merger agreement after Mariott sweetened its bid for Starwood on March 21, valuing the company at $13.6 billion. 
The merger, if it still goes through, would create the world’s largest hotel company. Marriott is confident it can achieve $250 million in annual cost synergies within two years after closing the Starwood deal.
After the news on Monday, shares of Starwood rose 2 percent, to $83.78. And shares of Marriott rose 3.93 percent, to $71.34.
(Google Finance)
Other consortium members acting together with Anbang in the Starwood deal are the two private equity firms J.C. Flowers & Co. and Primavera Capital Limited.
Founded in 2004, Anbang made a surprising move in the United States last year by acquiring New York City’s Waldorf Astoria Hotel. The company has aggressively taken billions out of China and invested them in insurance companies in the United States, Belgium, the Netherlands, and South Korea. 
It also offered $6.5 billion to buy Strategic Hotels & Resorts Inc., which owns several high-end properties including the JW Marriott Essex House in New York and Hotel Del Coronado in San Diego.
The Waldorf Astoria Hotel in Midtown East in Manhattan on Oct. 6, 2014. (AP Photo/Mark Lennihan)
Recent Deals May Attract Scrutiny
Given Anbang’s ties to the Chinese Communist Party, such transactions present security issues.
There is plenty of reason for controversy. The chairman of Anbang, Wu Xiaohui, is the grandson-in-law of the former leader of the Chinese Communist Party, Deng Xiaoping.
One of Anbang’s consultants is Chen Xiaolu, founder of the Red Guard Police Corps during the time of Mao Zedong’s Cultural Revolution, who had previously admitted he was part of the torture and persecution of teachers during the Cultural Revolution. His father was one of the communist regime’s founding generals.
Anbang’s $1.95 billion acquisition of the iconic Waldorf Astoria Hotel last year, attracted scrutiny from the Committee on Foreign Investment in the United States (CFIUS), which reviews deals over possible national security concerns, but was eventually approved. According to experts, CFIUS will also take a look at Anbang’s latest activities. 

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Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) announced that it received a revised binding offer from the consortium led by Anbang Insurance Group. The offer constitutes a “superior proposal” and Starwood’s board plans to call off the Marriott merger agreement, according to the company’s press release .
The consortium revised its bid to $78 per share in cash, an increase from the $76 per share proposal made on March 10, 2016. This tops Marriott’s earlier bid, which is currently valued at $65.33 (in cash and stock) and has a higher potential to derail the rival’s merger plan.
Anbang’s new offer raised the value of Starwood by nearly $340 million, bringing it to $13.2 billion.
Starwood, the owner of St. Regis, W, Westin, and Sheraton brands, will have to pay Marriott $400 million to break up the merger arrangement. Marriott International, Inc. (NASDAQ: MAR) has until March 28 to make another offer.
Both Marriott and Starwood announced they had agreed to merge in a cash and stock deal that would value Starwood at $12.2 billion last November. The merger, if it still goes through, would create the world’s largest hotel company.
On March 18, Marriott reiterated its interest to acquire Starwood and stated: “Marriott continues to believe that a combination of Marriott and Starwood is the best course for both companies and offers the best value to Starwood shareholders. Marriott is in the process of reviewing the Anbang consortium’s proposal and is carefully considering its alternatives.”
After the news last Friday, shares of Starwood rose 5.1 percent, to $80.32. And shares of Marriott rose 2.3 percent to $73.43.
(Google Finance)
Other consortium members acting together with Anbang in the Starwood deal are the two private equity firms J.C. Flowers & Co. and Primavera Capital Limited.
Founded in 2004, Anbang made a surprising move in the United States last year by acquiring New York City’s Waldorf Astoria Hotel. The company has aggressively taken billions out of China and invested them in insurance companies in the United States, Belgium, the Netherlands, and South Korea. 
Last week, it offered $6.5 billion to buy Strategic Hotels & Resorts Inc., which owns several high-end properties including the JW Marriott Essex House in New York and Hotel Del Coronado in San Diego.
The Waldorf Astoria Hotel in Midtown East in Manhattan on Oct. 6, 2014. (AP Photo/Mark Lennihan)
Recent Deals May Attract Scrutiny
However, given Anbang’s ties to the Chinese Communist Party, transactions like the sale of the Waldorf  present security issues.
There is plenty of reason for controversy. The chairman of Anbang, Wu Xiaohui, is the grandson-in-law of the former leader of the Chinese Communist Party, Deng Xiaoping.
One of Anbang’s consultants is Chen Xiaolu, founder of the Red Guard Police Corps during the time of Mao Zedong’s Cultural Revolution, who had previously admitted he was part of the torture and persecution of teachers during the Cultural Revolution. His father was one of the communist regime’s founding generals.
Anbang’s $1.95 billion acquisition of the iconic Waldorf Astoria Hotel last year, attracted scrutiny from the Committee on Foreign Investment in the United States (CFIUS), which reviews deals over possible national security concerns, but was eventually approved. According to experts, CFIUS will also take a look at Anbang’s latest activities. 

Read the full article here

A Chinese insurer, Anbang Insurance Group was little-known before it acquired New York’s iconic Waldorf Astoria for $1.95 billion in 2015. It was the largest acquisition of a U.S. real estate asset by a Chinese buyer. And it continues its buying spree by making two new bids last week that aim to expand its real-estate empire in the United States.
A consortium led by Anbang made a $12.8 billion bid for Starwood Hotels & Resorts Worldwide Inc. (HOT) on March 10, offering $76 a share in cash. This tops Marriott’s earlier bid of $63.74 (in cash and stock) and has a potential to derail the rival’s takeover plan.
Starwood has nearly 1,300 properties in 100 countries and owns famous brands like St. Regis, W, Westin, and Sheraton.
The offer implies a premium of 7.9 percent to Starwood’s closing price on March 11. The share of Starwood rose after the company’s press release on March 14, disclosing the details of the unsolicited bid.
“Starwood has received a waiver from Marriott enabling it to engage in discussions with the Consortium in connection with its proposal,” said the company in its press release. Starwood entered discussions with the consortium on March 11 and the Marriott waiver will expire on March 17, according to the press release.
(Google Finance)
Both Marriott and Starwood announced on November 16, 2015, that they had agreed to merge in a cash and stock deal that would value Starwood at $12.2 billion. The merger would create the world’s largest hotel company.
On Monday, Marriott reaffirmed its commitment to acquire Starwood and stated: “Marriott is confident that the previously announced merger agreement is the best course for both companies.” If Starwood walks away from the Marriott deal, it has to pay a break-up fee of $400 million.
“In our view, nothing changes unless a firm offer is put on the table. If that happens, we believe that Marriott may slightly improve the terms of its offer and emerge as the winning bidder,” wrote Nomura Securities analyst Harry Curtis in a note.
Marriott and Starwood would be able to make more money from the combined lodging platform, according to Curtis. However, Anbang does not offer such future synergies. “Even if Anbang firms up its offer, it may need to come up with a higher price. In our view, Marriott remains the best long-term partner for Starwood shareholders,” 
said Curtis.
Luxury Properties
Anbang has also agreed to buy Strategic Hotels & Resorts Inc. from Blackstone, a private equity group, for $6.5 billion on March 12.
The deal came just three months after Blackstone purchased the U.S. luxury-resort company. Anbang’s price is about $450 million more than what Blackstone had paid in December. 
Blackstone had been planning to sell individual properties in the portfolio. But Anbang made a pre-emptive offer for the entire company, according to a Bloomberg news.
With this acquisition, Anbang will gain a substantial presence in luxury properties including a number of Four Season resorts, San Diego’s Hotel del Coronado and Manhattan’s JW Marriott Essex House.
Anbang’s move is the latest by Chinese companies looking to invest in U.S. real estate, which is considered a safe haven. U.S. real estate is especially attractive for insurance companies who seek high investment returns as well as diversification.
With the easing of restrictions over the past few years, Chinese insurers are now able to invest up to 15 percent of their total assets in offshore real estate.
“These [acquisitions] are consistent with the trend we have seen in the last couple of years. It makes sense for Chinese institutions to acquire major U.S. hotel chains,” said Michael Meyer, president of F&T Group, a real estate development company, in a phone interview. Hotel chains with underlying real estate assets provide good hedging against weak Chinese economy and currency, according to Meyer. 
“I would expect this trend to continue at a great pace in 2016 for both hotels and other real estate classes,” he said.

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