Regulators remove Anbang chairman Wu Xiaohui for ‘economic crimes’, take over conglomerate 

Regulators take over firm for a year and will maintain it as a private company

PUBLISHED : Friday, 23 February, 2018, 10:53am
UPDATED : Friday, 23 February, 2018, 11:35pm

China’s insurance regulator has taken over one of the country’s biggest insurers and initiated a criminal prosecution against its chairman, in the strongest action to eliminate financial risk and out-of-control fundraising. 

Wu Xiaohui, the chairman of insurance and investment conglomerate Anbang Group, has been removed from his post, the China Insurance Regulatory Commission said on Friday.

Wu was placed under investigation in June last year. The commission, China’s insurance regulator, will take over the company along with the country’s central bank and regulators from the banking, securities and foreign exchange sectors, to maintain the “normal and stable operation” of the group, the regulator said.

“Wu is suspected of economic crimes … illegal operations at Anbang may have seriously endangered the company’s solvency abilities, prompting the government to take control of the insurer,” the commission said in a statement posted on its website on Friday morning.

Murky waters surrounding Wu Xiaohui and Anbang

The regulators will take over Anbang for a year and will “actively look for and introduce good quality social capital to restructure the firm”, while keeping Anbang “unchanged as a private company”, the commission said.

It said the takeover decision was made according to Article 144 of the Insurance Law, which states that the commission has the right to take over an insurance company when it faces severe insolvency problems, or damages public goods by breaking laws.

According to its statement on Friday, the takeover period will last from Friday until February 22, 2019. 

However, if a restructuring of Anbang does not finish by then, or normal operations do not resume, the commission can prolong the takeover period for another year at maximum.

“Other regulatory measures would be adopted by then,” the commission said.

Anbang’s general meeting of shareholders and its board of directors will cease to perform their duties during the takeover period, according to the statement. All the company’s daily operations will be taken over by a working group led by He Xiaofeng, director of the commission’s reform and development department, according to the statement.

He is known for his hawkish stance when it comes to cracking down on irregularities. 

In an article published in a commission-run journal this month, he said bankruptcy and liquidation should be adopted for some problematic insurance companies that have been operating “aggressively” or that which appear to be “gambling”.

“Make the big shareholders loose everything then we can restore normal metabolism in the market. Then the shareholders will be in awe of the market,” he wrote.

Anbang is a former overseas acquisition magnet that claims 1.97 trillion yuan (US$310.9 billion) in assets and ranks 139 on the 2017 Global Fortune 500 list.

An Anbang spokesman in Beijing declined to comment on the statement released by the commission. 

The Shanghai Municipal People’s Procuratorate had initiated the prosecution against Wu on charges of illegal fundraising, fraud and embezzlement, according to the statement. 

Beijing-based Anbang Group’s operations are currently “stable”, the commission said.

Anbang announced in June that Wu “can’t perform his duties for personal reasons”, after Chinese media including Caixin reported that he was under investigation.

Sources close to Anbang said the commission has been working with the company since, making all the major decisions on business strategy and investment. 

Anbang aggressively pursued A-share equity investments and has built up a big holding of A-share stocks. It controls a 15.5 per cent stake in China’s biggest non-state bank, Minsheng Bank, and a 10.7 per cent stake in the joint stock bank, Merchant’s Bank, according to stock filings in September. 

“Beijing has been reasonable when dealing with Anbang, because they need to be particularly cautious due to the nature of Anbang’s investors,” said Brock Silvers, managing director at Shanghai-based Kaiyuan Capital. 

Will Anbang sell its overseas assets including the Waldorf Astoria New York hotel?

“The last thing Beijing wants is protests from retail investors if they find the structured products they bought into would never be able to pay them back … the government will have to pay the investors any way, so better to keep the company alive and pay back as much as possible,” he said.

The government hopes to contain the panic among retail investors by taking over at the insurer for a transitional period before the company secures more capital and new shareholders, said Guo Zhenhua, head of the insurance department at Shanghai University of International Business and Economics. 

Were it not for the takeover, the exposure of Anbang’s problems could have triggered a flurry of policyholders surrendering their policies, he said. “It also reflects on how severe the capital shortfall could be at Anbang,” he added.

Anbang, with its flagship company Anbang Life Insurance, has been at the forefront of developing and promoting to retail investors short-term, high-yield insurance policies known as universal life insurance, which are similar to wealth-management products. These have, in turn, fuelled a spending spree by the company in China and abroad in the past few years.

Anbang crisis threatens whole financial sector, say analysts

Anbang held a 3.4 per cent and 5.3 per cent share of the national insurance premium market in 2015 and 2016, respectively. Its market share of all investment products was much higher, at 6.4 per cent and 19.4 per cent, in these two years.

By September 2017, the company was facing total debt worth 163.8 billion yuan, according to Bloomberg data.

“The biggest risk is duration mismatch. For instance, on one hand you sell six-month policies to retail investors, while on the other you are taking on long-term private equity deals overseas,” said Kaiyuan Capital’s Silvers.

“Beijing has given itself a year to gradually stabilise the situation. Look for all of Anbang’s acquired assets to be divested, possibly to Chinese White Knights should external interest prove disappointing,” he said.

Anbang had emerged as China’s most eye-catching overseas acquirer in recent years, after its US$1.95 billion acquisition of the Waldorf-Astoria hotel in New York in 2014.

But its overseas shopping spree was halted in June last year, after Wu was placed under investigation and its funding and deals came under scrutiny.

China’s financial regulators have since last year introduced a set of campaigns and rules to contain financial risks.

Additional reporting by Maggie Zhang and Jane Cai