February 23, 2018 / 5:34 AM / 7 months ago

Breakingviews - Anbang seizure flips script on Chinese takeovers

HONG KONG (Reuters Breakingviews) - The seizure of Anbang Insurance Group flips the script on Chinese takeovers. Authorities have commandeered the acquisitive insurer – a buyer of New York’s Waldorf Astoria and onetime suitor of $14 billion Starwood Hotels – and prosecuted its boss, Wu Xiaohui. It is the boldest step yet in Beijing’s battle against financial excess. The move also could be a worrying omen for others.

Chairman of Anbang Insurance Group Wu Xiaohui attends the China Development Forum in Beijing, China March 18, 2017. REUTERS/Thomas Peter

Anbang’s arc has been dramatic. Its rise was powered by investment-style “universal life insurance” products, whose high yields enabled Anbang to grab market share and also helped spur a $30 billion-plus binge on assets to fund promised returns. Less than two years ago, it was preparing to float a unit in Hong Kong, despite thorny questions about ownership and political ties.

Friday’s action formalises what began in June, when Wu was detained. China Insurance Regulatory Commission officials installed themselves inside the company and banks were told to review their lending to it and other deal-hungry conglomerates, including Dalian Wanda, Fosun and HNA.

The intervention by President Xi Jinping’s government feeds into a broader clampdown against excessive borrowing and risk, which caused the downfall of the insurance agency’s last boss. And while Anbang might not pose the same systemic danger as a major bank, its $315 billion of assets, millions of policyholders and numerous investments are of considerable significance in a country whose financial strength is under intense scrutiny.

This drastic step at least suggests the regulator has some grip on the problem and how to proceed. China can claim experience fixing up troubled insurers but nothing with the international sprawl to match Anbang’s. The government has given itself a year to act. A mooted capital injection could come from another big insurance group. A slew of disposals also seems likely.

Other conglomerates and their counterparties may be alarmed. Travel conglomerate HNA in particular is grappling very publicly with debt and liquidity wobbles. It answers to different regulators, though. Its bosses also have not been carted away, which could be taken as a sign that its troubles are less severe. Even so, China has now set a precedent for its own brand of takeover.

Breakingviews

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