China's government seized temporary control of Anbang Insurance Group Co. and will prosecute founder Wu Xiaohui for alleged fraud, cementing the downfall of a politically connected dealmaker whose aggressive global expansion came to symbolize the financial overreach of China's debt-laden conglomerates.
The surprise move furthers President Xi Jinping's anti-corruption and de-leveraging campaigns while providing a government backstop for the high-yield investment products that Anbang sold to hordes of Chinese citizens. It suggests that after months of clamping down on acquisitive tycoons, China is increasingly focused on insulating the economy from their shaky finances.
It's a remarkable turn for Anbang, which burst onto the global scene in 2014 with the purchase of New York's Waldorf Astoria hotel and only a year ago was in talks to invest in a company owned by the family of Jared Kushner, U.S. President Donald Trump's son-in-law and senior adviser. With 2 trillion yuan ($315 billion) of assets, Anbang represents China's largest-ever takeover of a privately owned company.
"This is another step in China Inc.'s great unwinding," Brock Silvers, managing director at Kaiyuan Capital, a Shanghai-based multi-asset advisory firm, said in an email.
"Given the determination exhibited by Beijing, and the public example of Wu Xiaohui's cinematic implosion, China's 'crocodiles' will surely redouble their efforts to address their balance sheets," Silvers said, using a term for tycoons who engage in aggressive financial maneuvers.
Chinese authorities, who first detained Wu in June, announced the Anbang seizure just days before the ruling Communist Party was expected to meet behind closed doors to approve personnel appointments and government restructuring decisions. Xi's efforts to clean up the nation's gargantuan financial system have accelerated in recent months as he prepares to begin a second term as president at the National People's Congress in March.
Markets took news of the takeover in their stride, with the Shanghai Composite Index rising 0.6% on Friday. China Minsheng Banking Corp., one of Anbang's biggest equity investments, advanced 2.8% in Shanghai as the government's move eased concern about a potential firesale. Anbang, whose ownership structure has long been shrouded in secrecy, isn't publicly traded.
The China Insurance Regulatory Commission (CIRC) disclosed the seizure in a statement on the insurance regulator's website Friday morning, while Shanghai prosecutors announced the charges against Wu.
A copy of the take over notices are available here and here and can be read in English with web browser tools such as Google Translate.
Here are some of the key takeaways:
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The country's main financial regulators will take control of Anbang for at least a year.
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The decision was made after illegal activities at the insurer endangered the company's solvency.
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Wu will be removed as chairman and charged with fundraising fraud and embezzlement, though authorities didn't provide details of his alleged crimes.
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Anbang's external liabilities won't be affected and the insurer's operations remain "stable."
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The takeover may end in a year if asset disposals are completed, strategic shareholders have injected capital and the company is stable.
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Government control can be extended by as much as another year if needed, but Anbang will ultimately remain a private company.
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A government-appointed takeover team will formulate detailed plans for changes in the company's shareholding structure, the sale of assets and liabilities, any potential division of the company, and whether other insurers will be appointed to manage parts of Anbang's operations.
Anbang representatives didn't respond to calls seeking comment.
(Photo: Thinkstock)
