Anbang and Globalism

China’s Anbang has informed Starwood Hotels that it is walking away from a $14 billion bid for the hotelier, in a surprise move capping off a three-week bidding war with Marriott.

Anbang, a Chinese insurance company, was founded in 2004. Over the last several years it seems to be trying to build itself into a financial conglomerate along the lines of Warren Buffett’s Berkshire Hathaway. Like Berkshire, Anbang is using insurance reserves to buy assets in a variety of businesses such as banking and real estate. It  bought more than $20 billion worth of hotel properties in the space of a year or so; it bought Waldorf and has a bid in on Starwood. It also spent over $2 billion on insurers in Belgium and South Korea in 2015. The company’s explanation is that it is diversifying. It may be they are concerned with the aging Chinese population and the burden that may place upon them as an insurer. They may see real estate as high yielding and a hedge against that population's aging.
Anbang is funding this spree by selling high-yield investment products to Chinese citizens.

Perhaps this is a grand currency play. And Anbang might be willing to overpay because it is converting Chinese currency. As there are expectations that there will be a further devaluation of the Chinese currency, the renminbi, by moving its money out of China, Anbang can hedge against such a downturn. Anbang also buys further protection from interference by Beijing authorities.

In the case of the Waldorf, Anbang entered into a 100-year contract with Hilton to manage the property. But who would manage Starwood? Anbang has partnered with the private equity firm J. C. Flowers & Company and the Primavera Capital Group. J. C. Flowers specializes in acquisitions in the financial services industry. Primavera is a Chinese private equity firm. Neither appears to have much hotel experience. What are the risks to the Americans should the takeover go through?

Caixin, a Chinese business publication, has reported that insurance regulators in China are said to be preparing to block the bids for both Starwood and Strategic Hotels & Resorts, because they would violate rules prohibiting insurers from investing more than 15 percent of their assets abroad. So the question may be moot. But it raises an interesting question: What is the responsibility of a regulatory agency who might worry about the viability of such a takeover? Globalism has some risks at home, too.