China’s Anbang Insurance has apparently rekindled its passion for hotels with the mainland financial upstart reportedly preparing a $7 billion bid for the FTSE-listed Intercontinental Hotels Group.
Anbang, which became famous for its $1.95 billion acquisition of New York’s Waldorf Astoria, and gained some infamy for its truncated $14 billion bid for Starwood Hotels and Resorts in March this year, is spending the summer meeting with international investment bankers attempting to put together a takeover of the parent company of Holiday Inn and other hotel chains, according to a report today in the Times of London.
After seeing its Starwood bid seemingly stifled by Chinese regulators, the insurer controlled by entrepreneur Wu Xiaohui has increased its sales by as much as 16-fold this year as it continues an acquisition campaign that has seen Anbang gobble up more than $12 billion in assets over the last two years.
Picking Up IHG as a Consolation Prize
In pursuing IHG, Anbang is going after a hotel operator with less than a third of the revenue of Starwood, with IHG having brought in $1.8 billion in top-line revenues last year according to its 2015 financials, compared to $5.76 billion for Starwood.
IHG, which also reportedly pursued Starwood before Marriott International ultimately acquired the rival chain for $13.6 billion, has been the subject of takeover speculation for some time, as financing costs remain low and the global hotel industry continues to consolidate in the face of pressure from online booking networks and platforms such as AirBnB.
Although best known for Holiday Inn, IHG operates 742,000 rooms in 5,028 hotels across nearly 100 countries, according to the company’s website. The group’s brands include Candlewood Suites, Crowne Plaza, Holiday Inn and Holiday Inn Express, Hotel Indigo, Hualuxe, InterContinental and Staybridge Suites. IHG had net income of $1.2 billion in 2015 and employs more than 7,300 workers globally.
The Times reported that Anbang began talks regarding IHG in June, and is said still be in the early stages of the process. The insurer has not yet made a formal offer for the FTSE 100 company, and neither Anbang nor IHG have commented publicly on the reported takeover bid.
Anbang Adds $34B to M&A War Chest
While Anbang gave scant explanation for abandoning its months-long quest to acquire Starwood, China’s insurance regulator, the CIRC, had raised concerns regarding the deal’s compliance with government restrictions on overseas holdings by insurers, and the agency has since been said to be investigating Anbang’s operations.
Since being frustrated in its attempt to acquire Starwood, Anbang has built up its cash pile through aggressive sales of hybrid insurance products that helped the company bring in RMB 228 billion ($34 billion) from its sales of high-yield products in the first six months of this year, according to official government figures.
Sales of short term insurance policies which combine traditional insurance with wealth-management-style yields has become a booming industry in China, as investors seek alternatives to bank deposits paying less than 0.5 percent interest.
Some of Anbang’s products “guarantee” a 4.58 percent yield on a two-year investment, according to a recent report in respected mainland financial journal Caixin, while competitors are generally restricted to offering a maximum 3.5 percent return unless they receive approval from the CIRC. Anbang also does not require downpayments on its wealth management policies, and a policy studied by Caixin had no penalty for early withdrawal.
Wagering on a Chinese Tourism Wave
In betting on hotels, Anbang is part of a mainland hospitality investment trend fuelled by a Chinese tourism boom. Spending on cross-border tourism by Chinese travellers grew to $215 billion last year, up 53 percent from 2014, according to the World Travel & Tourism Council.
With this rise in travel helping hotels globally, Anbang acquired Strategic Hotels and Resorts from Blackstone Group for $6.5 billion in January, and in April Beijing-based HNA Group bought Minnesota’s Carlson Hotels in a deal valued at as much as $2 billion.
In May, Cindat Capital Management, the private equity affiliate of one of China’s big four “bad banks” closed on a $571 million hotel joint venture with Hersha Hospitality Trust to buy a 70 percent stake in seven Manhattan hotels.