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China stock market

Anbang-owned stocks decline in Hong Kong, China in sign of strain at country’s biggest asset buyer

PUBLISHED : Wednesday, 14 June, 2017, 2:17pm
UPDATED : Wednesday, 14 June, 2017, 10:45pm

Shares of several publicly traded companies owned by Anbang Insurance Group are plummeting on the bourses of Hong Kong and mainland China, after the insurer said its chairman Wu Xiaohui is indisposed, in a sign of strain at one of China’s biggest asset acquirers amid a government campaign to impose financial discipline.

Declines were paced by China Merchants Bank Co., one of the country’s largest lenders, in which Anbang owns 10 per cent. Merchants Bank’s shares fell 2.1 per cent in Shanghai to 21.30 yuan, and declined 2.2 per cent to HK$22.15 in Hong Kong.

Anbang also owns 15 per cent of China Minsheng Banking Corp., the country’s first non-state lender, which fell 0.4 per cent to 8.06 yuan on the Shanghai bourse. The lender reversed earlier losses, adding 0.1 per cent to HK$7.78 in Hong Kong.

Analysts said that the reversal was likely to be sustained.

“I think the drop in China Minsheng bank and China Merchants Bank is a short term matter and they will bounce back,” said Marco Yau senior analyst covering banks at CEB International Research.

“Anbang has some sources of funds beyond just their insurance products, for example their asset management arm in Hong Kong. Also, China Minsheng and China Merchants are major banks in China. I don’t expect Anbang to be forced to sell off its stake in them, but in an absolutely worst case scenario, the government could ask an SOE to step in.”

Anbang, a little known insurer when it was founded in the Chinese capital in 2004, has become one of the country’s largest conglomerates in a little more than a decade, owning as much as 800 billion yuan (US$117 billion) of assets as at February 2015.

The insurer pioneered the creation of so-called universal life policies, a form of wealth management product with guaranteed returns. These policies allowed it to amass vast sums of capital, which in turn is used as war chest for acquiring assets, including stakes in publicly traded companies, property and resorts.

The insurer stepped up its acquisitions in 2014, buying the Belgian insurer FIDEA Assurances, payig US$2 billion to Blackstone for the Waldorf Astoria hotel in New York, and buying the Dutch insurer Vivat.

The company rose to notoriety in March 2016 when it entered an audacious -- but ultimately unsuccessful -- US$14 billion bidding war against the Marriott Group for control of Starwood Hotels & Resorts Worldwide.

The Chinese company even tried going into business with the family of US President Donald Trump, going into talks about a US$7.5 billion investment into a property under Kushner Companies, operated by the president’s son-in-law Jared Kushner. The deal fell apart in late March when the New York Post cited a Kushner Companies spokesman as saying the talks have ended without an agreement.

Anbang also began acquiring stakes among Chinese publicly traded companies. Gemdale Corp., a property developer that’s 20 per cent owned by the insurer, fell 4.3 per cent to 10.57 yuan. China State Construction Engineering Corp, in which Anbang owns 11 per cent, fell 3.8 per cent in Shanghai to 9.52 yuan.

Even Beijing Tongrentang Co., declined 2.3 per cent to 32.94 yuan. Anbang owns 8.3 per cent of the herbalist and traditional medicine dispenser, one of China’s oldest.

Following Anbang’s business model, many Chinese insurers created universal life products to amass capital, using them to finance their acquisitions and speculations in the stock market. Among them was the Baoneng Group, a little known property developer that used its war chest to mount a hostile takeover last tear of China Vanke Co., then the country’s largest developer.

The acquisitions and speculation got so far out of hand that China’s regulators finally took action, and clamped down on the financial industry. Several insurers including Baoneng were reprimanded, fined and penalised. Baoneng’s founder Yao Zhenhua was banned from the industry for 10 years. The insurance regulator Xiang Junbo, under whose watch the industry spun out of control, was fired in April.

How China’s insurance industry evolved: A timeline after ‘reform and opening up’

Now the axe appears to be falling on Anbang. The insurer was issued with a ban last month from selling new insurance products for three months.

The insurer’s chairman and general manager Wu Xiaohui had been meeting and cooperating with the China Insurance Regulatory Commission, the industry watchdog, in investigations into financial matters at his company. He had been taken away, and had not returned to his office since last week, the Chinese financial magazine Caijing reported, citing unidentified people, before deleting the report from its website.

CEBI’s Yau said that the moves to reign in Anbang might mark the end of the matter.

“I don’t expect too much more market turbulence,” he said.

“The two companies that were most aggressive in making these types of investments were Anbang and Qianhai Life Insurance [established by Baoneng], and both have paid the political consequences.”

Additional reporting by Alun John

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