China’s Anbang Insurance is suing Korea’s Mirae Asset Management for failing to pay for the $5.8 billion acquisition of a portfolio of 15 high-end US hotels, after the coronavirus pandemic stalled financing for the transaction.
The nationalised mainland insurer filed the lawsuit at Delaware Chancery Court in the US on Monday, following Mirae’s failure to secure the necessary financing to purchase the portfolio – which include the landmark JW Marriott Essex House on Manhattan’s Central Park South – according to accounts in Bloomberg, the Wall Street Journal and the Financial Times.
Anbang representatives are reported to have said in a public summary that the lawsuit seeks an order to force the Seoul-based asset manager to complete its obligations under the sale and purchase agreement signed in September together with “certain equity commitment letters”.
Feeling Remorseful after Agreeing a High Price
The move by the insurer, which bought the luxury hotels through its $5.5 billion 2016 acquisition of Blackstone’s Strategic Hotels & Resorts portfolio, comes as Mirae was reportedly trying to renegotiate the deal with Anbang following a missed payment on 17 April.
Anbang is alleging that Mirae is suffering “buyer’s remorse” as the COVID-19 pandemic has terrorised the US hotel sector and driven occupancy below ten percent this month, according to sources cited by Bloomberg.
With the insurer still paying off what it had borrowed to finance the purchase of Strategic from Blackstone in 2016, the breakdown of the deal is likely to challenge Anbang’s cash flow.
Brock Silvers, chief investment officer at Hong Kong’s Adamas Asset Management, said that the insurer “undoubtedly remains eager to offload the properties”, but that “hospitality financing is very difficult in the present market, and Anbang may be hard-pressed to find a replacement suitor”.
Failing to Find US Financing
As the pandemic empties hotels across America, the US hospitality industry has seen financing for acquisitions dry up, as lenders focus on providing loans to keep hotel groups afloat.
Amid these tougher conditions, Mirae has been unable to raise financing from US lenders, according to sources cited by Bloomberg.
Anbang, on the other hand, is racing to service a debt pile that it built up during an acquisition spree between 2014 and 2016, which included the $1.95 billion purchase of New York’s Waldorf Astoria.
“The lending market is unlikely to change in the near-term, and neither will Anbang’s desire to shed non-core assets,” Silvers said.
Should the deal fall through, Mirae is set to lose a $600 million deposit placed after signing the sale and purchase agreement seven months ago.
“The most likely outcome may still be a renegotiation covering both price and timeline,” Silvers added.
Selling off Trophy Assets
Mirae had agreed to purchase the hotel portfolio from Anbang seven months ago in a deal wihc would give the Korean firm ownership of a set of urban hotels and resort properties across the US including Manhattan’s Essex House, San Francisco’s Westin St Francis, the Intercontinental in Chicago, and several Four Seasons and Ritz-Carlton properties.
Anbang had been seeking a buyer for the portfolio since August 2018, just two months after it was taken over by a Chinese government-controlled fund and three months after founder Wu Xiaohui was sentenced to 18 years in jail for fraud and embezzlement.
The troubled insurer first made headlines in 2014 when it acquired New York’s Waldorf Astoria Hotel from Blackstone in deal which thrust the privately held Chinese insurer onto the world stage.
Anbang has since spent another $1 billion revamping the historic property and converting part of the building into luxury apartments.
The refurbishment is currently suspended due to the pandemic, while the sales office for the apartments has closed.