Anbang’s rehab

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The Chinese government has injected Rmb60.8 billion (US$9.65 billion) into Anbang in a move that suggests the group’s capital was largely fictitious.

Before its takeover by the Chinese government in February, the company claimed to have registered capital of Rmb61.9 billion — just Rmb1.1 billion more than the China Insurance Security Fund’s injection, yet the total capital position has remained the same.

“The capital injection will be supportive of strengthening Anbang’s risk management, ensuring ample liquidity and maintaining the stability of its operations,� said the company’s interim management working group this week. “Anbang’s registered capital remains at Rmb61.9 billion following the capital injection by CISF.�

The fund, which is temporarily holding shares in Anbang during the interim management period, also said that it will gradually transfer shares in the company to maintain its status as a private company.

“Anbang will officially start to select strategic shareholders in the near future to actively introduce large-scale private investors with a strong capital position, distinct core business, sound investment philosophy and strong operational track record to participate in its equity restructuring,� said the working group.

In particular, it said it would welcome investors involved in pension insurance, healthcare, internet and technology, or any insurance-related businesses. It was reported in January that the government was in talks to sell Anbang to Central Huijin Investment, part of China’s sovereign wealth fund — or, in other words, the government was exploring the sale of Anbang to itself.

Before any sale, it is expected that the government may inject further capital to shore up the company’s balance sheet. With total assets of Rmb1.97 trillion, or roughly US$310 billion, its capital represents just 3.14% of that figure.

Asset sales are also a possibility. Anbang owns significant stakes in Minsheng Bank, Financial Street Holdings and Gemdale Group, while its more infamous assets include Strategic Hotels & Resorts, which it bought for US$6.5 billion in 2016; New York’s Waldorf Astoria, for which it paid US$1.95 billion in 2015.

Shortly after the regulator started its investigation last June, the group sold at least Rmb6.64 billion of shares in the four biggest Chinese banks — Agricultural Bank of China, China Construction Bank, ICBC and Bank of China.

Meanwhile, former chairman Wu Xiaohui admitted to the charges in his trial on fraud and embezzlement this week, and “expressed deep self-reflection, understanding of and regret for the crimes and expressed deep remorse for his actions�, according to the Shanghai No. 1 Intermediate People’s Court’s summary of proceedings.

However, reports from the trial have done little to clarify the specific evidence of wrongdoing at Anbang. To be sure, the company’s ownership was obscured behind layers of complex cross-ownership by hundreds of shell companies and recent regulatory moves appear to have been aimed at preventing a repeat.

For example, the new rules require insurers to have a clear shareholding structure and to reveal the actual controlling entity to the regulator, effective from April 10. Other requirements block a single shareholder from controlling more than one-third of an insurer’s registered capital, while investors cannot entrust others to hold shares in an insurer.

While such measures are clearly aimed at Anbang-style schemes, the industry regulator has always had the power to address the alleged massive fraud and embezzlement conducted by Wu. It remains to be seen why this wasn’t done sooner. Or perhaps not.

This post was syndicated from InsuranceAsia News. Click here to read the full text on the original website.

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