The Reason Anbang Pulled The Starwood Offer: It Couldn't Prove It Has The Funds

Several days ago, we explained how China's bizarro M&A scramble was nothing more than a rushed attempt to park as much capital in the US (and offshore) as possible before Beijing gets wise enough and cracks down on this latest loophole to evade Chinese capital controls, we had this to say about the farcical, and now pulled, $14 billion Anbang offer for Starwood, owner of the W Hotels, Sheraton and St Regis brands:

Seen in this light the recent deal in which a Chinese insurer is seeking to buy one of the world's biggest hotel chains makes all the sense in the world: big Chinese investors are not seeking to actually generate profits on future M&A, they are merely looking to preserve capital and are doing so by overpaying for acquisitions around the globe.

As such the biggest question, and wildcard in this, and all other Chinese megadeals in the recent record splurge for US assets, was what is the source of financing: after all the last thing Anbang and peers was for the government to start cracking down on just how they were funnelling funds offshore.

As the FT reported moments ago, "Wu Xiaohui, Anbang’s chairman, this week brushed away questions about the source of his funding and warnings from the Chinese insurance regulator by assuring Caixin, a respected Chinese business publication, that Anbang had Rmb1tn in assets."

Furthermore, Anbang’s pursuit of Starwood came into question last week after a Chinese news outlet reported the country’s insurance regulator may invoke a rule that restricts domestic companies from investing more than 15 per cent of their total assets abroad.

That may have been the gamechanger.

And, as was announced late this afternoon, Anbang unexpectedly pulled its Starwood offer, and for a very specific reason. According to the FT, an investor consortium led by China’s Anbang Insurance has lost the bidding war for Starwood Hotels & Resorts, after failing to demonstrate that it had the financing in place to back up its latest $14bn offer, according to a person directly involved.

This means that either the entire hostel (sic) bid was a sham from the beginning, or Anbang's chairman Wu Xiaohui and his various "related party" co-owners got a tap on the collective shoulder from the government who told it the jig was up.

Worse, this means that not only is Anbang out of the game and that Starwood has to go back crawling to Marriott hoping the terms of the latest purchase proposal are still valid, but that suddenly China's M&A spree may be over as fast as it started.

FT adds that the end of Anbang’s pursuit of Starwood "marks the sharpest setback for Chinese bidder who have accounted for a record share of global merger and acquisition activity in 2016."

It also risks reviving long-held questions in the minds of sellers and their advisors about the seriousness of some Chinese suitors. Anbang’s consortium had shared no details in public about the sources of its financing, and offered no comment on Thursday about whether it had fully funded its offer.

We now know it had no financing in place whatsoever, and either it was the government that stepped in, or Starwood's stakeholders said they do not accept suitcases full of recently laundered cash as a form of payment.

In any event, those eight items we listed last night in "8 Things The Chinese Are Scrambling To Buy In America", are now 7, and may soon be 6, 5, 4 and so on.

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There is, of course, a far simpler explanation why Anbang pulled the deal: the entire company is a fraud, as the following NYT profile of its shady internal dealing strongly hints:

He is often compared in the media to Warren E. Buffett. Like the American billionaire, he is leveraging his control of an insurance company to become one of the biggest names in global finance. Like Mr. Buffett, he looks to be acquiring an immense personal fortune. But that is where the comparisons between Wu Xiaohui, the chairman of the Anbang Insurance Group of China, and Mr. Buffett come to a halt.

 

 

Mr. Wu has links to some of the most powerful families in China. He married Zhuo Ran, the granddaughter of Deng Xiaoping, China’s former paramount leader in the 1980s and much of the 1990s. That name, uncommon in Chinese, appears in corporate records tied to at least two of the 37 holding companies.

 

His exact holdings in Anbang are not clear. A close examination of Anbang’s shareholding structure shows that the 37 companies control more than 93 percent of Anbang, while two Chinese state-owned companies own the rest. The 37 shareholders are linked by common phone numbers, email addresses and interlocking ownership, according to company records filed with the Chinese government and available online.

 

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One Anbang shareholder — a coal mining company in China’s western region of Xinjiang — is owned by another mining company, Zhongya Huajin, that listed a Zhuo Ran as its first legal representative, though that person has since resigned.

 

Zhongya Huajin shares an official website address with a different Anbang shareholder, a Beijing real estate company. Collectively, those companies own nearly 4.6 billion shares of Anbang, or more than 7 percent. The companies could not be reached for comment, and their common website now contains only links to pornography and gambling services.

 

Five shareholders list the same legal email address in government filings. Phones at those companies rang unanswered, and a message to that address was not returned.

 

Calls to Anbang’s listed phone number were not answered. Nobody replied to a list of questions delivered to its Beijing headquarters, with its enormous lobby — the size of several basketball courts — and its large chandelier. An Anbang employee said the company did not answer media questions.

But aside for China's "legitimate" financial mega-companies being borderline fraud, the country with the $35 trillion in bank "assets" has everything else under control. We promise.