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What Do Anbang's Actions Tell Us

2016-03-25  Source:JinList.com

Since its acquisition of the famed Waldorf Astoria Hotel in New York last February for $1.95 billion, and its subsequent purchase of an office tower on 717 Fifth Avenue in New York for $415 million, China's Anbang Insurance Group went on with its rapid fire hotel investments.

In early March 2016, Anbang agreed to purchase Strategic Hotels & Resorts for $6.5 billion from Blackstone Group, just 3 months after Blackstone acquired Strategic for $6 billion.

Then, in a week's time, Anbang made an all cash offer of $13.2 billion for Starwood Hotels & Resorts Worldwide. Leading a consortium, Anbang succeeded in disrupting and outbidding Marriott International temporarily. Marriott may eventually acquire Starwood through an improved counter offer through a combination of cash and stocks.

Anbang Insurance Group, one of the largest insurance groups in China, has $250 billion in assets, 30,000 employees and more than 35 million clients. Its investment actions in U.S. hotels seemed to underscore a sense of urgency in acquiring branded hotel assets in the U.S.

In JinList's view, the urgency is based on several considerations.

1. By acquiring luxury hotels in the U.S., Anbang foresees a growing demand among Chinese travelers to the U.S. Anbang seemed to put aside the industry's anticipation of cyclical softening in the commercial real estate market. Jin Zhao, CEO of JinList.com commented that although Chinese travelers to the U.S. are not the largest in number compared with those to Hong Kong, Thailand or South Korea , the average retail spend per Chinese traveler in the U.S. is the highest, estimated at $2,555 this year, followed by Europe's $2,548, much higher than in closer destinations such as Hong Kong. The U.S. is by far the most desired desitination.

2. China does not have or offer comparable luxury hotel brands as investments. By attenpting to acquire such well-known brands as Four Points, Sheraton, Westin, W Hotels, Le Meridien and St. Regis, Anbang hopes to own the world's luxury hotel brands with presence around the world. In other words, investments in hotels in China would not offer benefits or expected returns nearly as attractive.

3. The recent fluctuations in Chinese stock markets and the talk of further Chinese renminbi devaluation add onto the attractiveness of investments in the U.S.

4. Anbang is just one of several Chinese investment companies that are actively investing in the U.S. Many of their investments did not involve such well-recognized brand names. The actual investment pool may be even larger.

What about China’s foreign exchange controls? Zhao commented that Anbang could use its balance sheet to fund its acquisitions, or it can raise additional equity in the capital markets, or it can work with other partners just like those in its acquisition bid for Starwood Hotels.

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