Microscope on Anbang’s dealings

A halt — or extended pause — has come to the slew of high-profile overseas property acquisitions in recent years by Beijing-based Anbang Insurance Group Co. Amid a broad investigation into the insurer’s operational practices, chairman Xiaohui Wu was detained and stepped down from the company this month. And, authorities have asked Chinese banks to suspend business dealings with Anbang, according to news reports.

Wu raised his and the insurer’s global profile with Anbang’s 2015 acquisition of New York City’s landmark Waldorf Astoria Hotel for $1.95 billion, and the $6.5 billion purchase of Blackstone’s Strategic Hotels & Resorts portfolio in 2016 of 16 luxury hotels across the United States. The insurer also made headlines last year in a bidding war with Marriott International to acquire Starwood Hotels & Resorts Worldwide, with Anbang eventually walking away from its $14 billion bid.

“Mr. Wu masterminded the explosive rise of his company in just over a decade by selling relatively risky investment products — not traditional insurance policies,” according to a BBC News article. “Still smarting about the collapse of Shanghai’s stock market in 2012, Chinese regulators had warned about Anbang’s ‘wealth management products’.”

According to The Economist, Anbang has $242 billion in assets under management, but only $9.1 billion in current capital, a far cry from the $60 billion in starting capital the insurer had in 2004 when it began as an auto insurer. Now, at least six large Chinese banks have stopped selling policies for Anbang, resulting in a serious drain on the insurer’s primary revenue source.

“Anbang’s life unit distributes almost 90 percent of its products through banks, collecting premiums that Wu has used to snap up global assets from U.S. hotels to a Belgian lender and a South Korean insurer,” reports Bloomberg News, which also notes a clampdown by Chinese regulators on insurers relying on “sales of short-term policies to fund purchases of illiquid assets like real estate.”

But the Chinese government had given insurers the green light in recent years to acquire overseas real estate. In an April 2017 feature for Institutional Real Estate Asia Pacific’s Special China Edition, author Ben Briggs, executive vice president of international business for Briggs Freeman Sotheby’s International Realty, put it this way:

Large organizations — such as the country’s largest mainland insurer, China Life Insurance Co., which has more than $360 billion of total assets on its balance sheet — are worried about a weaker Chinese economy and yuan depreciation and, therefore, are seeking good yields in safe investments. Regulations allow them to invest up to 15 percent of total assets in overseas real estate, which would mean up to $50 billion. Currently, insurers such as China Life, Anbang Insurance Group Co. and Ping An Insurance Group Co. have several departments tasked with investing $5 billion to $10 billion each over the next few years.

Late last year and early this year, Anbang continued its international buying spree from Blackstone with the roughly €487 million ($542 million) acquisition of a Dutch office portfolio and the €350 million ($392 million) purchase of a 557-room hotel in Amsterdam, respectively, according to Mingtiandi.com.

But other big deals have fallen through this year, such as a $4 billion redevelopment plan for 666 Fifth Ave. in Manhattan, which is co-owned by Kushner Cos. The plan drew criticism in China and the United States, in part due to ethics concerns surrounding doing such a deal with the Kushner family, when Jared Kushner is President Trump’s son-in-law and a high-ranking member of his cabinet.

The regulatory scrutiny Anbang and former chairman Wu face will take time to unravel and could have far-reaching consequences for how Chinese insurers are allowed to invest in overseas property in the future, especially given Chinese President Jinping Xi’s efforts to further stabilize the nation’s financial system.