As Anbang’s hotel takeover gets blocked, expect more government interventions as Chinese firms continue to snap up US assets

A deal to buy California hotel, near a major naval base, from Blackstone called off following opposition from US national-security officials

PUBLISHED : Monday, 24 October, 2016, 6:46pm
UPDATED : Tuesday, 25 October, 2016, 11:35am

Anbang Insurance Group’s planned takeover of a landmark Southern California hotel has collapsed after the seller, Blackstone Group, called off the transaction following opposition from US national-security officials.

The US government has stepped up its scrutiny into Chinese-backed acquisition deals after a spate of purchases including properties, movie makers and tech companies in recent months.

But analysts say the whole issue has been overblown, and is largely being fueled by the ongoing US presidential election, and its anti-Chinese rhetoric.

Blackstone ended the sale of the Hotel del Coronado near San Diego, estimated to be worth about US$1 billion, after fears were raised by the Committee on Foreign Investment in the United States (CFIUS), which reviews acquisitions of American businesses by non-US entities for national-security risks.

The hotel, where the 1959 Billy Wilder comedy “Some Like It Hot” was filmed, is one of the most valuable of the 16 luxury properties that were part of Strategic Hotels & Resorts, a real estate investment trust that Blackstone acquired last December for about US$6 billion.

The firm agreed in March to sell Strategic Hotels to Anbang for US$6.5 billion. Anbang had completed the purchase of 15 of the 16 hotels in the portfolio last month, according to Bloomberg, citing an unnamed source.

Anbang did not confirm the Bloomberg report on Monday, but said the company “is pleased to have completed its acquisition of a portfolio of hotels as part of the Strategic Hotels transaction from the Blackstone Group”. Blackstone was unavailable for comment on Monday.

The remaining hotel is located on a peninsula that’s also home to the US naval base Coronado. The military facility comprises eight installations that lie on either side of the hotel, including an amphibious base, landing fields, and warfare training centre.

It’s one of the main training grounds for the special-operations Navy SEALs, Bloomberg reported.

“People are over reacting and there is great fear about Chinese companies expanding their investment in the US, particularly at a time when the presidential election is setting up China as the bogeyman...this is apparently has acted as a damper to Anbang’s purchase attempt,” said Shaun Rein, managing director of Shanghai-based China Market Research Group.

“For Anbang itself, credibility remains a challenge as their retreat from the Starwood deal has triggered doubts into their real intention and ability, while the lack of transparency of the company’s ownership structure remains another major concern,” he added.

Anbang launched a bidding war in late March with Marriott International for Starwood Hotels & Resorts Worldwide Inc, but withdraw three weeks later, leaving Starwood to be acquired by Marriott last month.

People are over reacting and there is great fear about Chinese companies expanding their investment in the US, particularly at a time when the presidential election is setting up China as the bogeyman
Shaun Rein, managing director, Shanghai-based China Market Research Group

An international buying spree of late by Chinese conglomerates and wealthy individuals has been spurred on by the country’s economic slow down and the yuan’s depreciation, which has unnerved the US, in regards to national security, cyber-espionage and ideology penetration, say experts.

In February, the CFIUS issued a report reflecting work completed in the calendar year 2014, but highlighted there were more recent trends, “such as a possible shifts in the level of CFIUS aggressiveness towards certain types of foreign investors”.

The Netherlands’ electronics giant Philips cancelled the US$2.8 billion sale of its lighting-components unit in January to a group led by GO Scale Capital of China, because of opposition from CFIUS.

Stephanie Tang, an M&A partner at Shearman & Sterling, said as Chinese businessmen increasingly buy up US assets, more could now face being challenged by the Treasury Department-led interagency body.

“The review process is not as straight forward as a box-ticking exercise. It is not transparent and unpredictable... and sometimes also affected by political and direction of public opinion,” she said.

“Generally speaking, the review will check the nature of the target business and the nature of the buyer, and under the worst scenario, the CFIUS could order unwind the transaction,” Tang said.

CFIUS objections are seen as de facto outcomes and reviews rarely reach the point of the president stepping in to block a deal.

One exception, however, was when in 2012 President Barack Obama stopped Sany Group, a Chinese private company, from building wind farms near a US Navy base in Oregon.

Before that, the biggest blocked deal can be traced back to 1990, when then president George H W Bush ordered China National Aero-Technology Import and Export Corporation to halt its acquisition of MAMCO Manufacturing, a Seattle-based producer of aircraft parts, due to concerns the Chinese could gain access to technologies protected by export licence.

In February, Chicago Stock Exchange, one of the oldest exchanges in the United States, announced its planned sale to an investor group led by China’s Chongqing Casin Enterprise Group.

The parties did not disclose terms of the deal, which is expected to close in the second half of the year. If regulators approve it, this would be the first sale of a US exchange to investors from China but not to a foreign entity. A unit of Germany’s Deutsche Boerse bought the International Securities Exchange in 2007.

Chinese state-owned chemical company ChemChina agreed to buy Swiss pesticides and seeds group Syngenta earlier this year in a deal that would transform it into the world’s largest supplier of pesticides and agrochemicals. It is the biggest foreign acquisition for a Chinese firm. ChemChina has already received approval from US national security officials for the takeover.

Several members of the US Congress have urged greater scrutiny of China’s use of “soft power”, and last month urged the country’s Government Accountability Office (GAO) to take a more cautious approach towards Chinese led M&As by launching a review of CFIUS, citing raised concerns about the telecommunications, media and agriculture sectors, particularly.

It specifically cited China’s Dalian Wanda Group, which is chaired by the country’s richest man Wang Jianlin, which already owns US theatre chain AMC Entertainment and US production house Legendary Entertainment, and is interested in buying additional properties as it expands itself into a global entertainment brand.

With the Strategic Hotels purchase, Anbang now owns properties including New York’s JW Marriott Essex House, the Westin St Francis in San Francisco, InterContinental Chicago, Loews Santa Monica Beach Hotel, Fairmont Chicago, the Four Seasons in Washington and Ritz-Carlton resorts in Laguna Niguel and Half Moon Bay, California, Bloomberg reported.

Anbang set a record for a single US hotel acquisition with its February 2015 purchase of New York’s Waldorf Astoria for US$1.95 billion, a deal that CFIUS had to clear.