By James T. Areddy
SEOUL -- China's Anbang Insurance Group dove headlong into South
Korea, spending over $1 billion as it took control of two insurers,
agreed to buy an asset-management company and picked up a bank
stake in rapid succession.
Now those deals are fraying. Anbang is trying to claw back money
it paid for one of the insurers after a financing scandal it didn't
discover in due diligence. It has struggled to close the deal for
the asset manager, and local regulators are monitoring its
marketing of insurance products.
Anbang's effort to stitch together a global financial network
around its core Chinese insurance operation has received less
attention than its purchase of Waldorf Astoria New York or its
unsuccessful bid for Starwood Hotels & Resorts Worldwide. But
insurance is Anbang's backbone, and Korea is emerging as a test for
the company's resilience globally in the face of problems back
home.
Anbang is among a handful of big private conglomerates Chinese
regulators have targeted over their overseas acquisitions. Chairman
Wu Xiaohui, who charted Anbang's global expansion, has been
detained by investigators for alleged economic crimes, according to
people familiar with the matter.
Mr. Wu's whereabouts aren't known, and he hasn't made a public
statement. Anbang declined to comment for this article. It has said
in his absence, other executives are running the group and that
some of its overseas entities operate with relative autonomy.
Fallout from these domestic troubles already are spilling beyond
China's borders. In Europe following news about Mr. Wu's absence in
June, investors dumped EUR650 million ($763 million) of debt
securities issued the previous month by Anbang-owned Dutch insurer
Vivat NV, though the bond's price has partially rebounded.
Local regulators reviewing Anbang's acquisition of asset manager
Allianz Global Investors Korea Ltd. are considering, among other
things, whether the Chinese company meets a "fit and proper test"
to handle investor funds -- a determination now complicated by Mr.
Wu's disappearance, a person with knowledge of the situation
says.
Allianz says the sale is "an ongoing regulatory matter."
Korea's Financial Services Commission declined to comment on
specifics on Mr. Wu and said while it is monitoring Anbang's
activities, it hasn't detected any problems that might affect
customers. Regarding the "fit and proper" test, it said, "Majority
shareholders shall have sufficient investment capabilities, sound
financial standing and social credibility."
Anbang's difficulties in South Korea are partly the result of
Mr. Wu pushing the company into the market without articulating a
clear plan, said analysts, competitors and a company insider. Given
Mr. Wu's status, they say, the company may drift. "Strategy? We
don't have such things," says a person involved in recent Anbang
deal making. "The chairman makes the decisions."
Anbang entered South Korea ahead of the 2015 launch of a
free-trade pact that fueled expectations of stronger financial ties
between two powerhouse economies.
That year, Anbang bought control of Seoul-listed Tong Yang Life
Insurance Co., agreeing to pay a 45% premium, or about $1 billion,
the first Chinese investment in the country's financial sector.
Last year, it agreed to buy two Korea businesses from Germany's
Allianz SE, a loss-making insurer and the profitable asset manager,
at the fire-sale price of $3 million.
In a mark of its ambition for the market, the company created a
red logo ABL -- for Anbang Life -- and put it in big letters on a
financial-district skyscraper in Seoul. The Korean businesses have
also taken steps to integrate with Anbang's globalizing operation
such as drawing on expertise from the European business Vivat and,
in the case of Tong Yang, lending $275 million to an Anbang-owned
hotel in California.
Last November, Anbang got a piece of government-controlled Woori
Bank when an investor group including Tong Yang bought a 30%
stake.
Tong Yang and the Allianz insurer quickly gobbled up market
share. Key to growth was the sale of insurance as a type of time
deposit that earns yields sometimes triple what competitors
offered, according to marketing materials and industry executives
and analysts.
Under Anbang, the former Allianz business recorded a 190%
increase in personal premium revenue in four months, while the
market overall shrank 3.4%, according to figures from the Korea
Life Insurance Association.
Rivals say the deals accounted for almost all of the industry's
growth in that period. "There's been a disturbance in the market
with China-backed insurance products," said Andrew Barrett,
executive vice president at Seoul-listed ING Life Insurance Korea
Ltd. "We don't think it's permanent."
Mr. Wu has said Anbang jump-started a staid industry through
"export of know-how and management skill of Chinese enterprises,"
as he put it in a December commentary published in trade
publication Asian Insurance Review.
Anbang derived most of its China revenue selling similar
products -- until Chinese regulators forced an end to the practice
earlier this year.
Such products can be risky because they must be repaid quickly,
and figures from Tong Yang show its initial sales burst didn't
last. Competitors and analysts say Korean authorities took notice
of the rapid expansion and efforts in China to slow it there.
Late last year, Tong Yang acknowledged it had been duped in a
commodity financing scam that involved a defaulted borrower whose
collateral was raw meat; the meat had been pledged to multiple
lenders including Tong Yang. That prompted Anbang to claim it is
owed $630 million from the private-equity investors that previously
controlled Tong Yang, nearly two-thirds of what the Chinese company
agreed to pay for the Korean firm, according to a regulatory
disclosure that says the matter is being arbitrated. The sellers
argue they aren't liable.
Though he spearheaded the drive into Korea, the Anbang chairman
actually spent little time in the country, according to people
familiar with the matter. Dressed in a tailored business suit on a
freezing morning last winter, Mr. Wu presided over the appointment
of a new board at one of the insurers, according to an attendee. He
departed midway through a simple Korean lunch where executives sat
on the floor to eat, Korean-style.
--Min Sun Lee contributed to this article.
Write to James T. Areddy at james.areddy@wsj.com
(END) Dow Jones Newswires
August 17, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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