China Nationalises Fallen Mega-Investor Anbang After Chairman Jailed

A Chinese government-controlled fund now owns New York’s Waldorf Astoria hotel, as mainland regulators have officially nationalised the hotel’s purchaser, Anbang Insurance Group.

Nearly full ownership of Anbang has been transferred to the government-controlled China Insurance Security Fund, the China Banking and Insurance Regulatory Commission (CBIRC) revealed on Friday. The industry bailout fund now owns 98.23 percent of the troubled, formerly private conglomerate, which has claimed total assets of nearly RMB 2 trillion ($310 billion).

The CBIRC seized control of Anbang’s operations in February, and the firm’s former chairman Wu Xiaohui was sentenced to 18 years in prison for fraud and embezzlement last month. Anbang’s metamorphosis into a ward of the state followed a global deal spree, in which the Beijing-based conglomerate rose from obscurity to ink some $30 billion in property and corporate assets in the span of 30 months.

Anbang Becomes Government Property

China’s insurance regulator (now the CBIRC) was reported to be overseeing Anbang’s daily operations as early as July 2017. This past February, the watchdog said in its seizure notice that it would maintain control of the firm for a full year, claiming that Anbang was guilty of illegal business operations which could endanger its solvency.

That one-year time frame could now be extended by another year if needed, according to a person with knowledge of the matter cited by The Wall Street Journal. The China Insurance Security Fund, which had injected RMB 60.8 billion (nearly $9.7 billion) into Anbang in March, will hold Anbang on a temporary basis until a private shareholder is found, according to the account. The firm will continue to be managed by the team of financial regulators that took over in February.

The percentage of Anbang now held by the state-owned fund is nearly identical to the share that Shanghai prosecutors alleged Wu controlled through concealed means. The tycoon was found guilty of fundraising fraud, filing false statements to regulators, and embezzlement of RMB 10 billion in corporate funds from Anbang, and had $1.6 billion of assets confiscated on top of his lengthy prison sentence following a one-day trial.

Formed in 2008, the China Insurance Security Fund raises money from mandatory contributions by insurers and reported its size as $13.7 billion at the end of 2016.

Fate of Overseas Asset Portfolio Unclear

Anbang is best known overseas for its $1.95 billion purchase of the Waldorf Astoria from Blackstone’s Hilton Hotels in October 2014, which launched a global acquisition binge for properties, insurance firms and other investments. The conglomerate bought at least $9.5 billion in assets from Blackstone alone, which also included $5.5 billion worth of high-end US properties as part of the Strategic Hotels & Resorts portfolio.

The US private equity giant was reported in February to be considering making an offer to buy back some or all of those assets. Late last month, Anbang said in a statement that it had no plans to sell off its sprawling overseas portfolio.

The conglomerate relied on high-cost borrowing to finance its investment wave, drawing scrutiny from China’s regulators over its sale of shady, high-yielding insurance and wealth management products. Anbang channeled the proceeds from the products, some of which guaranteed returns of over five percent, into trophy assets such as the famous Manhattan hotel, which is believed to have an investment yield of around 2.0 percent according to property consultancy JLL.

As Mingtiandi has reported, some analysts believe the gap between the insurer’s high funding costs and its rapid purchases of low-yielding assets helped convince Chinese authorities to clamp down on Anbang’s shopping spree last year.