China tightens grip with Anbang takeover
• Regulators rein in dizzying debt levels of a private insurer on a foreign acquisition binge, including the purchase of the Waldorf Astoria hotel in New York
Beijing’s unprecedented takeover of private insurer Anbang confirms that toxic risks lurk in the world’s secondlargest economy while signalling the state’s tightening grip on China Inc despite reform rhetoric, analysts said. Government regulators seized control of the Anbang Insurance Group on Friday, saying that its debtfuelled foreign acquisition binge left the company in financial peril and that high-flying founder and former chairman Wu Xiaohui would be prosecuted for fraud.
The takeover, to last at least a year, was the most striking step yet by regulators to rein in dizzying debt levels and a clear sign that the government saw something frightening in Anbang’s books.
“This move has huge significance. If something went wrong with Anbang it would lead to massive bad loans in the financial system,” said Beijingbased economist Hu Xingdou.
China has moved aggressively over the past year to slam the brakes on companies like Anbang, which ran up gargantuan debts to fund pricey overseas acquisitions.
Such companies have become known as “grey rhinos” — financial beasts that could charge quickly, with damaging results.
Despite expert warnings that China’s spiralling debt could spark a meltdown with global repercussions, the communist regime has steadfastly insisted any risks remain controllable.
But a look under Anbang’s hood has clearly spooked Beijing, analysts say.
Anbang raked in cash largely by selling short-term policies promising some of the highest returns in the market and rose from obscurity to become one of China’s biggest insurers. With the proceeds, the Beijing-based firm spent billions overseas, snapping up New York’s iconic Waldorf Astoria hotel in 2015 for nearly $2bn, adding other pricey hotel and financial assets around the globe and even making an aborted $15bn bid for Starwood Hotels. Beijing’s clampdown on risky financial practices since 2016 crippled Anbang’s fundraising. “It’s a serious problem. There may now be a flood of redemptions coming through,” said Christopher Balding, a Peking University economist.
“If you are a $315bn company like Anbang and have to write down even just 20% of your assets, that’s almost a $100bn hole. That’s big even by China’s standards,” Balding said.
Many Anbang holdings look likely to be sold off. Attention will now shift to other “grey rhinos”, like HNA, Fosun and the Wanda Group.
Those companies have been pulling back, with Wanda in particular selling off billions in assets recently to stay solvent, and are not yet seen as imminent government takeover targets. But the Anbang move sets a precedent of state intervention in the private sector.