Mergers & Acquisitions


Chinese regulators step in to calm market jitters over crackdown of overseas asset acquisitions

PUBLISHED : Thursday, 03 August, 2017, 4:04pm
UPDATED : Thursday, 03 August, 2017, 10:52pm

Two of China’s financial regulators have stepped in to calm market jitters about the government’s crackdown on overseas deals, denying reports that they would further discourage and scrutinise the overseas acquisitions by several of the country’s biggest asset buyers.

The China Insurance Regulatory Commission (CIRC) denied Bloomberg’s report that it had pressed Anbang Group to dispose of its offshore assets including New York’s landmark Waldorf Astoria hotel to repatriate the sales proceeds. There was “no related demand, plan or arrangement” to do so, the regulator said during a Thursday press briefing in Beijing.

A day earlier, the State Administration of Foreign Exchange (SAFE) chimed in to say that it actively supports banks and companies engaged in “real and compliant” businesses to use their onshore assets as collateral for offshore loans, rebutting Bloomberg’s Tuesday report that quoted unnamed sources saying SAFE was scrutinising the borrowing practice.

The statements, coming on the heels of putting several of the Chinese asset buyers -- Anbang, Dalian Wanda Group, Fosun Group and HNA Group -- under the spotlight for their profligate deal making and record-setting acquisitions, is sending mixed signals.

“It’s clear the authorities don’t want people to panic,” said Brock Silvers, managing director of Kaiyuan Capital, an investment advisory in Shanghai. “They also need to avoid spoiling the market for companies like Anbang” and not be seen to be making demands or requests for them to exit from the overseas market, and “to remain rational to ensure good pricing,” he said.

Read: Chinese outbound M&A activity set to cool this year after record 2016

The closer government scrutiny spooked the market and pushed dealmakers to the sidelines, causing first-quarter outbound mergers and acquisitions to plunge 85 per cent to US$12.5 billion, according to Mergermarket’s data. The second quarter was an improvement, with 94 outbound acquisitions valued at US$35.9 billion according to Baker & McKenzie’s July 20th Cross-Border M&A Index.

Anbang grabbed global headlines in 2014 when it bought the Waldorf for US$1.95 billion. In March, it submitted plans to renovate the hotel to convert 1,000 of its 1,413 rooms into private apartments for sale. Three months after the renovation plans were submitted, Anbang’s chairman Wu Xiaohui took a leave of absence. He had been detained by mainland China authorities for investigations, Caijing had reported, citing unidentified sources.

Read: Are the lights finally out for China’s biggest overseas acquirers?

The worldwide shopping by China’s four largest offshore asset buyers -- all of them privately owned -- have chalked up a combined US$10 billion of syndicated loans and bonds that will mature by 2019, according to Bloomberg’s data. That’s raising concerns among policymakers about the exposure by Chinese banks to over leveraged debt, especially for the Communist Party’s leadership ahead of their party elections in autumn.

“It seems clear that China Inc is now actively reducing debt,” said Kaiyuan’s Silvers.

Magnate Wang Jianlin’s Dalian Wanda Group had to dispose of 77 of his hotels and 13 theme parks for a bargain basement price of US$9.3 billion to two local developers last month to raise funds for refinancing its borrowings. This week, shares of Wanda’s US cinema chain AMC Entertainment Holdings plummeted by 25 per cent after it issued a profit warning for the second quarter.

Amid the closer scrutiny, Wanda and Fosun declared that their business focus would shift to their home market. The currency regulator’s statement may go some way toward calming the market.

Fosun is keeping apace with its acquisitions, announcing separately on Thursday that it’s completed its portion in a joint takeover of Koller Beteiligungs GmbH, a German specialist in making lightweight cars. That’s the first acquisition in the industrial sector for Fosun, whose global assets span financial services, pharmaceuticals, leisure and tourism.

Anbang pioneered the business model in China of using the income from its universal life policies -- a form of wealth management product with guaranteed returns -- as war chest to finance its asset acquisitions. Following a regulatory crackdown on the practice, the proportion taken up by universal life insurance policies shrank 19.5 percentage points in the first half of this year, in an industry where overall premium grew 23 per cent to 2.3 trillion yuan (US$342 billion).

Premiums for property and casualty insurance increased 12.9 per cent to 485.2 billion yuan while premiums for life insurance saw growth slow to 26 per cent, to 1.8 trillion yuan, from a 50.3 per cent growth rate in the first half of 2016.

Equity investments by insurance funds rose by 0.23 percentage points in the first half, accounting for 7.13 per cent of total investment, according to the CIRC.

Additional reporting by Robert Delaney in the US