Anbang’s Long, Slow Road to Redemption

(Bloomberg Opinion) -- Prepare for the great, but slow, unwinding of a Chinese leviathan.

Anbang Insurance Group Co., the bailed-out owner of assets from New York’s Waldorf Astoria hotel to Dutch insurer Vivat NV, is sending out mixed messages. The conglomerate hired bankers at UBS Group AG and China International Capital Corp. to advise on potential divestments, Bloomberg News reported Monday; yet the government team that took over Anbang said the company has ample cash flow and no plans to dispose of overseas interests.

There may be no contradiction. Authorities pumped 60.8 billion yuan ($9.5 billion) into Anbang in April to save the too-big-to-fail insurer, having killed its business model by cracking down on sales of the high-yield wealth management products that powered its rise. That doesn’t mean the company is no longer flailing. Its former chairman Wu Xiaohui was sentenced in May to 18 years in prison for fraud and embezzlement, three months after China seized control of the company.

The cash may be just a temporary reprieve: Anbang posted a net loss of 11.67 billion yuan for the first nine months of 2017, according to China Bond Rating Co.

Anbang’s Long, Slow Road to Redemption

It’s probably still suffering, so will have no choice but to liquidate investments. But a company with assets equal to 3.4 percent of China’s gross domestic product, according to a UBS estimate last year, can and should take its time.

That means there will be no rush to offload Anbang’s portfolio of overseas trophy properties – unless pushed to by regulators in countries such as South Korea and Belgium, where it has significant insurance assets. Beijing won’t welcome the optics of a fire sale by a firm that will remain under its control at least until March next year. Meanwhile, a hundred million dollars here or there of profits or losses on disposals won’t move the needle much in the process of restoring the insurer to health.

Anbang’s Long, Slow Road to Redemption

Anbang is cashing out steadily at home. Even here, finding buyers for its biggest holdings may take time. The insurer is a major shareholder in China Merchants Bank Co., owning 13 percent of the lender’s local-currency A shares, and the largest investor in China Minsheng Banking Corp.’s Shanghai-listed stock.

Its more liquid stock and bond investments also won’t be an easy sell. Chinese shares are struggling, with the benchmark Shanghai Composite Index down about 8 percent this year, while rising defaults have spooked the almost $9 trillion fixed-income market. 

What Anbang needs more than fast money is time. That’s something that can only come from a permanent new owner. Beijing has said it’s seeking strategic investors and private capital for Anbang, but it’s unclear who will step up to buy a giant company with a flawed business model. The size of Anbang’s asset base means it would be hard to swallow even for a state behemoth like China Life Insurance Co. 

Over time, Anbang’s exposure can be unwound without hurting the economy and the company can be shrunk into a regular, boring insurer. The government said in February that it would remain in control for at least a year: If it thinks it can shake off this monster in a mere 12 months, it’s probably deluded.

©2018 Bloomberg L.P.