Chinese Government Seizes Control of Anbang as Boss Charged with Fraud

The Chinese government now has direct control of the Waldorf Astoria hotel in New York, as the country’s insurance regulator formally takes over the hotel’s embattled owner, Beijing-based Anbang Insurance Group.

Anbang, which had scooped up the famed Manhattan property three years ago as part of a $30 billion offshore deal spree, is guilty of illegal operations and will be restructured, according to a note posted on the official website of the China Insurance Regulatory Commission (CIRC) this morning. The regulator added that Wu Xiaohui, former chairman and CEO of the Beijing-based firm who disappeared into detention last June, is being prosecuted for “economic crimes.”

The First Intermediate People’s Court of Shanghai has indicted Wu for fraudulent fundraising and for improper use of company assets, according to a statement by the office of Shanghai’s public prosecutor cited by Chinese news outlet Caixin.

Beijing Puts Anbang Out of its Misery

CIRC said it would take over the company for a year, from today until February 22, 2019. Anbang’s business operations violate China’s insurance laws, which may “seriously endanger” the firm’s solvency, according to the regulator. The insurance watchdog was reported to be overseeing Anbang’s daily operations as early as last July.

Following the takeover, all asset transactions, capital transfers and non-insurance contracts must be approved by a 31 member task force appointed by the CIRC, according to the statement, which referred to Wu as Anbang’s “former chairman”.  In addition to Wu’s apparent removal, the company’s board of directors and general meeting of shareholders will be suspended, while other employees are to continue performing their duties.

The takeover team, which also includes members of other regulatory bodies, will introduce private capital to restructure the group, which the CIRC says will retain its private status. The move is designed to protect the rights and interests of customers and safeguard the public interest, according to the regulator.

“Anbang may remain a private company, but you’re likely to see it broken up and its operations taken over by more stable domestic players,” said one mainland investment banker who spoke with Mingtiandi. “The government doesn’t want to run the company directly in the long term, but it could break Anbang up and arrange for pieces of it to be acquired by more established firms.”

Insurer in Disarray After Global Shopping Spree

Anbang is best known abroad for its $1.95 billion purchase of New York’s Waldorf Astoria from Blackstone’s Hilton Hotels in 2014. The landmark deal kicked off a global acquisition spree in which the company picked up a combined $16 billion of properties, insurance firms and other overseas assets in the span of 30 months.

Anbang relied on high-cost borrowing to finance this investment surge. In the process, the company began to draw regulatory scrutiny over its sale of dubious insurance and wealth management products such as “Anbang Win-Win #3,” a three-year product offering a 5.1 percent guaranteed payout.

Proceeds from its high-yielding products enabled Anbang to acquire trophy assets such as the Manhattan hotel, which had a reported investment yield of around 2.0 percent, according to property consultancy JLL. This mismatch between Anbang’s high funding costs and rapid acquisition of low-yielding assets is thought by some analysts to be among the reasons that China’s regulators decided to truncate the insurer’s investment spree last year.

China’s Regulators Move From Crackdown to Takeover

Now Anbang Group’s business operations are “fundamentally stable,” according to a statement by CIRC cited by financial data provider Wind Information. The regulator said it sent a task force to conduct on-site inspections and strengthen oversight of Anbang last June.

Wu was reported to be detained that month, after the company’s life insurance unit had been barred from selling new products over alleged violations of insurance rules. The once high-flying magnate, who married the granddaughter of China’s former leader Deng Xiaoping, has not been heard from since.

The company made the second-largest US acquisition by a Chinese buyer in 2016, by purchasing the Strategic Hotels & Resorts portfolio of high-end hospitality assets from Blackstone Group for $5.5 billion. Now Blackstone, which ultimately sold a total of $9.5 billion of properties in the US and Europe to Anbang, is reportedly in early talks to buy back some or all of those assets.

Anbang first became a target of government scrutiny in March 2016, when it lodged and then abruptly abandoned a $14 billion bid for US-based hospitality chain Starwood Hotels and Resorts. Reports in the Chinese media at the time of Anbang’s Starwood bid said that the CIRC was opposed to further overseas acquisition by the insurer, which was said to have already surpassed limits on foreign asset holdings.  Anbang ranks 139th on the Fortune Global 500 list and has claimed total assets of RMB 1.97 trillion ($310.85 billion).