BEIJING—The Chinese regime has officially seized control of Anbang Insurance Group Co. Ltd. and prosecuted the company’s chairman, dramatically illustrating Beijing’s willingness to curtail big-spending private firms as it cracks down on financial risk.
Insurance giant Anbang had violated laws and regulations which “may seriously endanger the solvency of the company,” the China Insurance Regulatory Commission (CIRC) said in a statement announcing the seizure on Feb. 23, without providing additional details.
The CIRC also said Anbang‘s chairman and key shareholder, Wu Xiaohui, has been prosecuted for economic crimes. Wu was arrested in June 2017 as troubles mounted for one of China’s most aggressive buyers of overseas assets.
The Shanghai prosecutors office said in a statement on Feb. 23 that Wu had recently been charged with fundraising fraud and abuse of his position, and that his case had been forwarded to the city’s intermediate court for prosecution.
During the takeover of Anbang Group, which will last for one year starting from Feb. 23, the company will be managed by a group of Party officials from the CIRC, the central bank, and other key financial regulators and government bodies.
The takeover of Anbang, which claims 1.97 trillion yuan ($310.85 billion) in assets and ranks 139 on the Global Fortune 500 list, is a defining blow to a conglomerate best known for acquiring the landmark Waldorf Astoria New York.
The unprecedented seizure of a major private company also underscores how far the ruling Chinese Communist Party will go in its growing campaign to lower financial risks, sending a signal to risk-taking private enterprises.
Anbang Insurance has significant stakes in a slew of major Chinese companies, such as banks and property developers.
Also on Feb. 23, China Minsheng Banking Corp. Ltd., China Merchants Bank Co. Ltd., developers China Vanke Co. Ltd., and Gemdale Corp. said they received similar notices from Anbang assuring them that there would not be immediate stake sales.
“Currently, operations at Anbang Insurance Group and its units are operating normally with abundant cash reserves. There are no plans to sell shares in your company,” the companies quoted Anbang as saying in similar filings to the Shanghai and Shenzhen stock exchanges.
The Chinese regime did not elaborate on Anbang’s crimes, but The Epoch Times has previously reported on the company’s questionable sources of capital. Back in January, a Chinese journalist posted on Weibo a quote from an inside source, stating that Anbang was already under CIRC’s control and Wu had lost his controlling rights of the company.
A regulatory source with knowledge of the matter said the Chinese authorities had been effectively running the company since Wu was detained and the timing of the official takeover was linked to the investigation into Wu, which was nearly complete.
But a Beijing-based lawyer who works with the CIRC and other regulators said senior officials at the insurance regulator had been watching Anbang closely since last year as its liabilities from the sale of shadow banking products grew, raising questions about the company’s solvency.
“This appears to be an unprecedented takeover—a Chinese-style hostile takeover,” said Scott Kennedy, director of the Project on Chinese Business & Political Economy at the Center for Strategic and International Studies in Washington.
“The Chinese government doesn’t want to have a company default on foreign debt and it also wants to teach a lesson to other Chinese business people that the Party is in charge.”
After a spate of high-profile deals worth over $30 billion, Anbang began to run into roadblocks even before Wu’s detention, failing to close on a handful of investments and facing criticism over its opaque shareholding structure.
A spokesman for Anbang Insurance Group declined to comment and referred to the CIRC announcement.
Calls to Wu Xiaohui’s personal phone numbers were either disconnected or unanswered.
“Clearly a message is being fed back into the market and to private companies that being very innovative may not be looked on favorably in the long run,” said Keith Pogson, senior partner for Asia-Pacific financial services at Ernst & Young.
“This says to the market ‘tread carefully’—if they hadn’t already got that message.”
In a separate statement on Feb. 23, CIRC said insurers must take steps to handle fraud risks and that it had issued new guidelines for the industry.
The CIRC said that Anbang‘s debts and obligations will not be impacted by the takeover.
The takeover was implemented under a broad provision in the country’s insurance law allowing it to rectify violations of the law by insurance companies, it said.
The noose had been tightening around Anbang as China’s insurance industry came under the microscope over the past year or so for risky behavior, ranging from term-mismatches on insurance products and highly leveraged overseas acquisitions, as well as corrupt practices.
Anbang distributes insurance through multiple channels, with the bulk going through banks.
Under Wu, Anbang was among China’s most active overseas investors after the regime liberalized offshore investment rules earlier this decade.
In the United States, Anbang bought the Waldorf Astoria for $1.95 billion and later agreed to pay $6.5 billion for Strategic Hotels and Resorts, purchasing both properties from Blackstone Group.
It acquired life insurance companies in South Korea and in Europe, as well as the largest retirement home chain in British Columbia, Canada.
But it has faced increasing pushback in its offshore deal-making as Beijing has sought to curb capital outflow.
Perhaps most important in China’s business environment is one’s political connections. Wu may have sided with the wrong Party officials.
Sources close to the central authorities told The Epoch Times back in June 2017 that Wu had ties to the family of Zeng Qinghong, the former Chinese vice premier and right-hand man to former Party leader Jiang Zemin. Jiang and his associates make up an opposition faction at odds with the current leader Xi Jinping and his allies.
The source said Wu had helped the Zeng family and other members of the Jiang faction to launder money overseas, while using his business dealings to spy on and influence foreign dignitaries.
From Reuters. Epoch Times staff member Annie Wu contributed to this report.