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Chinese insurer Anbang dismisses 'creative financing' claims

Caixin magazine says company inflated capital through complex shareholding structure

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The headquarters of Anbang Insurance Group   © Reuters

HONG KONG -- Another deep-pocket private enterprise in mainland China is being scrutinized ahead of the Communist Party's epoch-setting National Congress to be held this fall.

Anbang Insurance Group, which operates China's second largest life insurer, was accused lately by Caixin Media, a self-styled independent financial news outlet based in Beijing, for crafting an unusual web of corporate shareholders.

Caixin's article, written by Guo Tingbing, suggested Anbang's dubious structure had helped facilitate frequent capital transactions among its obscure affiliates. The circuitous capital flows, which were associated with Chairman Wu Xiaohui, apparently resulted in a 12-times inflation of Anbang's registered capital to 61.9 billion yuan ($8.98 billion) between 2009 and 2014.

Reprimanding Caixin for producing "libelous reports," Anbang said it would sue the publication, the writer Guo, and Editor-in-Chief Hu Shuli, a seasoned journalist. Anbang also said Caixin was motivated to publish the article by its failed attempts to win business from the insurer.

"Caixin Media has even left their unilaterally executed contracts at our office," Anbang said in a statement.

Caixin said Monday evening that "Anbang's allegations are completely fabricated and a blatant disregard of law," adding that it "sets a strict firewall between its business and newsroom operations."

Anbang hit back again on Wednesday in an open letter addressed to Hu, casting doubt on the magazine's "strict firewall" claim. The letter cited how Caixin had approached the insurer about a proposed deal, with personnel from the editorial and business sections seated together at the same table. 

The controversy follows Anbang's botched attempts to take over U.S. insurer Fidelity & Guaranty Life after it failed in April to refile an application to the New York regulator that could sufficiently explain its ownership structure and sources of funding for the deal.

The failed transaction mirrored its withdrawal from the acquisition of U.S. Starwood Hotels & Resorts Worldwide last year after raising its offer price to a record $14 billion in a bidding race against Marriott International.

In March, Anbang terminated the negotiation with Kushner Companies, the real estate entity formerly led by U.S. President Donald Trump's son-in-law Jared Kushner, to redevelop the office tower of 666 Fifth Avenue in New York.

Before the failed deals, the Beijing-based company had symbolized China's voracious appetite for overseas assets. It has since 2014 closed 20 cross-border deals worth at least $20 billion mainly in the U.S., South Korea, Western Europe, and Hong Kong, according to financial data provider Dealogic.

Waldorf Astoria New York, the former official residence of the U.S. ambassador to the United Nations, was among the trophy assets of Anbang, which has grown its financial prowess partly through selling universal life policies -- a mass-market, savings-type product in the mainland that tends to offer high credit rates and short premium terms.

With a market share of 15.9% during the first two months of the year, Anbang -- joining the fray only since 2010 -- has displaced Shenzhen-based Ping An Insurance Group to become the second largest player in China's cut-throat life insurance market, behind only state-owned China Life Insurance that commands 18.5% of the market. Factoring in the 3.1% market share of its subsidiary Hexie Health Insurance, currently the ninth largest player rising meteorically through selling universal life policies, Anbang's dominance is even more obvious.

Anbang's string of frustrated deals and Caixin's investigation came amid Beijing's expressed will to clean up the country's financial services sector. An increasing number of local banks, brokerages, insurers, and their responsible persons have been subject to disciplinary actions.

China Banking Regulatory Commission, led by reformist Guo Shuqing since March, said April 7 that it had handled 485 cases of administrative penalties, exacted total fines of 190 million yuan, and penalized 197 people responsible in the banking sector in the first quarter of 2017.

Local media reported last week that Anbang Chairman Wu Xiaohui has been detained by Beijing authorities for an investigation into a $14.5 billion loan he allegedly obtained illegally from joint-stock commercial lender China Minsheng Banking Corp. Anbang has been Minsheng's largest shareholder since late 2014 with a 17.8% stake.

The incident followed various high-profile investigations into Minsheng's senior officials. The Hong Kong-listed bank said in a filing on April 28 that the president of a sub-branch in Beijing was found guilty of "defraud[ing] customers of their funds by [the] use of forged wealth management contracts and bank seals." According to the bank, the fraud case involved 1.65 billion yuan and more than 150 customers at its sub-branch in Beijing.

S&P Global Ratings said on Tuesday that Minsheng's "BBB" credit rating is unaffected by recent allegation. "We view corporate governance and transparency as a weak spot in China's banking industry, and have therefore already factored this assessment into our ratings on Chinese banks," the credit agency explained in a note.

(Updated May 3, 2017, at 2:30 p.m. JST)

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