Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

There are two key reasons why investment bankers may want to steer clear of Anbang, the acquisitive Chinese insurer that's planning an initial public offering in Hong Kong: The company has an opaque ownership structure, plus a business that's more akin to shadow banking than straight-laced policy sales. If risk-seeking investors can look past those stumbling blocks, they may see a worthwhile punt.

It's a fact of life that many Chinese companies are politically connected and lack transparency. While a public presence may do little to shed light on the company's provenance, the IPO will have one major draw card should it get the blessing of Hong Kong authorities: Anbang is huge, and getting bigger by the day.

The latest figures show that the company, which began life as a provincial car insurer as recently as 2004, has sold more products by value this year than any other Chinese insurer apart from state behemoth China Life -- outpacing even 30-year-old stalwart Ping An. Anbang, along with its unit Hexie Health, had a 15.7 percent share of China's life premiums plus investment funds received through July, just behind China Life's 17 percent, according to Bloomberg Intelligence analyst Steven Lam.

The caveat is that a heavy chunk of Anbang's growth has come from wealth management-type products that promise high returns. Still, even its growth in premium sales, which exclude such products, has been staggering: In July last year, Anbang had a mere 4.7 percent share of the market.

Pace Setter
Anbang is one of China's fastest-growing insurers, with premiums surging more than 68% in July
Source: Bloomberg Intelligence
Footnote: Premium data exclude wealth-management-type savings products.

There's no doubt that Anbang looks riskier than a standard insurer. The bulk of its sales come from these deposit-like products; in contrast, the majority of China Life's are protection-type policies.

Fast growth is a reason to be wary. Anbang's murky ownership structure is a further impediment, deterring some bankers from advising it on its Hong Kong IPO, people familiar with the matter told Bloomberg's Jonathan Browning and Regina Tan. As Gadfly observed in April, an inability to "know your customer" opens banks to the risk of flying blind with a client.

Concerns around ownership and the source of Anbang's funds led the company to withdraw a $14 billion bid for Starwood Hotels, owner of the Sheraton and Westin brands, at the end of March. (The risk that the deal would breach a Chinese cap on investing more than 15 percent of an insurance company's assets overseas may also have been a factor.) These issues have also weighed on U.S. approval for Anbang's acquisition of insurer Fidelity & Guaranty Life. 

Some more light was cast on Anbang's owners by a New York Times investigation Friday, though it may offer little reassurance to would-be IPO arrangers. The Times found that a multitude of shareholders in Anbang were family members and acquaintances of Wu Xiaohui, the insurer's chairman, who is connected by marriage to the family of China's late paramount leader Deng Xiaoping. U.S. regulators have been asking who these shareholders are and whether they are holding their stakes on behalf of others, the report said.

And yet, Anbang keeps on growing, not just from sales of universal life (a.k.a. wealth management) products, but through overseas acquisitions aimed at delivering the yields it's promised clients amid low interest rates and a falling yuan at home. The insurer has also been buying stakes in domestic companies, where interests include China Merchants Bank and Minsheng Bank as well as Vanke, the country's biggest real estate company.

Big Spender
Anbang's overseas acquisitions have been surging this year
Source: Bloomberg

Such is the pace of Anbang's expansion that its 1.97 trillion yuan of total assets would place it among the world's top 25 insurers, bigger than Standard Life and just shy of Munich Re. If that strains credulity for a company that's been around only since 2004, then consider another firm that was founded the same year: Facebook, which is now the world's sixth-largest company by market cap with a value of $362 billion.

A Billion Here, a Billion There
Anbang's claimed 1.97 trillion yuan in total assets would make it one of the world's top 25 insurers
Source: Bloomberg, Anbang website
Note: Japan Post Holdings and Power Corp. have been excluded to avoid double-counting their insurance subsidiaries, Japan Post Insurance and Power Financial.

Wu Xiaohui may be no Mark Zuckerberg, but sometimes size carries its own momentum. Adrenaline junkies who want to close their eyes and enjoy the ride should cross their fingers and hope this roller-coaster is headed up, not down.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net