Why China Is Scrutinizing Its Biggest Dealmakers: QuickTake Q&ABy
Chinese officials have stepped up scrutiny of the country’s most prolific overseas dealmakers -- Dalian Wanda Group Co., Anbang Insurance Group Co., HNA Group Co. and Fosun International Inc. The added checks by China’s banking regulator build on a campaign to slow the pace of China’s overseas takeovers, which surged to a record last year.
1. What is the banking regulator actually doing?
The China Banking Regulatory Commission ordered lenders to provide information on the four companies, plus the Chinese buyer of the AC Milan soccer club, according to people familiar with the matter. The regulator wants data on loans related to the companies’ overseas investments, especially in property, cinemas, hotels, entertainment businesses and sports clubs, people familiar with the matter have said. Banks must detail risks connected with the funding, and how the lenders are protected, according to the people. Without commenting on specific companies, CBRC Deputy Director Zhiqing Liu said the regulator was concerned with systemic risks posed by big firms.
2. Why those companies?
With the exception of the AC Milan owner, the private groups have been at the forefront of a global buying binge in recent years, gobbling up stakes in everything from “Kong: Skull Island” producer Legendary Entertainment to New York’s landmark Waldorf Astoria hotel, Deutsche Bank AG and Cirque du Soleil Inc. Combined, the four conglomerates have announced more than $60 billion in deals since the start of 2016. To put that in perspective, Chinese companies declared over $310 billion in acquisitions during that period, according to Bloomberg data.
3. Why does China care when companies buy foreign assets?
It’s the yuan, stupid. The Chinese currency has been depreciating fast and is within striking distance of crossing 7 to the dollar for the first time since 2008. Back in early 2014, the yuan was close to 6. Chinese officials worry that money flowing out for overseas purchases will exacerbate the currency’s depreciation. A Communist Party body chaired by President Xi Jinping said June 26 that the nation needed to step up scrutiny of companies’ outbound investments, according to Xinhua. Even with the government’s efforts to limit capital outflows, the yuan will probably weaken to 7 by the end of the first quarter of next year, according to the median analyst estimate compiled by Bloomberg.
4. What is HNA?
HNA Group has been arguably the most acquisitive Chinese company recently, becoming the biggest shareholder of well-known names such as Hilton Worldwide Holdings Inc. and Deutsche Bank. Led by Chairman Chen Feng, the once-obscure company has announced more than $40 billion in asset purchases from the start of last year. This firm stood out for seeming to push ahead with acquisitions even as deals by the likes of Wanda started to stall as the government stepped up scrutiny. The company also found itself in the news because of questions about its true ownership, and when Guo Wengui, a fugitive tycoon sought by the authorities, made allegations of secret ties to Communist Party officials. HNA denied those claims and sued Guo in New York for libel.
5. What is Anbang?
Started in 2004 as an auto, property and casualty insurer, Anbang and its chairman, Wu Xiaohui, shot to international fame with the acquisition of New York’s Waldorf Astoria in 2014. That kicked off a three-year takeover spree that saw the firm notch more than $10 billion in foreign acquisitions. The company fueled its growth by selling short-term insurance policies with high returns. Now, those products are under scrutiny from regulators trying to rein in financial risks. Detained by investigators, Wu has faced questions in a probe that includes looking into the sources of funding for Anbang’s overseas acquisitions, possible market manipulation and “economic crimes,” people familiar with the matter have said. The investigation doesn’t mean Wu is accused of any crime or will face charges, the people said. The company has confirmed he isn’t carrying out his duties, for “personal reasons."
6. What is Wanda?
Led by billionaire Wang Jianlin, China’s second-richest man, Wanda is a real-estate group that’s seeking to transform itself into a entertainment giant that would challenge Walt Disney Co. The business is building a score of Wanda Cities -- massive multi-billion-dollar complexes with theme parks and lodgings -- across China, and plans to develop large projects in places such as France and India. Despite the property roots, Wang is squarely focused on entertainment and has said numerous times that he’d be willing to buy a big Hollywood studio. His group owns AMC Entertainment Holdings Inc. and is the world’s largest operator of movie theaters. Wanda has disclosed more than $12 billion of deals, including the purchase of Hollywood producer Legendary Entertainment, since the start of 2016.
7. What is Fosun?
Like Anbang, Fosun has used money raised selling insurance to pursue deals -- a la Warren Buffett’s Berkshire Hathaway Inc. In the 25 years since its founding, Fosun has transformed into a sprawling empire with assets ranging from Cirque du Soleil Inc. and Club Med to the 28 Liberty building near Wall Street in New York. In 2015, Chairman Guo Guangchang briefly disappeared to help with a government investigation. The intrigue triggered a rout of Fosun-related securities. He later re-emerged, vowing to ensure the business was not reliant on any one individual. Fosun and its units have announced or completed more than $16 billion in purchases from 2014, according to data compiled by Bloomberg.
8. What do we know about this AC Milan owner?
Not a lot. Chinese businessman Li Yonghong heads up Rossoneri Sport Investment Lux, the company that led the 740 million euro ($827 million) deal to buy the seven-time European champion soccer team. Very little is known about Rossoneri or its track record for deals.
9. Are all Chinese firms banned from overseas deals then?
No. China National Chemical Corp.’s proposed $43 billion purchase of Swiss pesticides maker Syngenta AG, which would be the country’s biggest overseas acquisition, is on track. But there’s a big difference: Syngenta has the technology to make yield-boosting genetically modified crops and the deal is aimed at enhancing China’s food security. It’s hard to argue, for a Wanda or a Fosun, that buying a Hollywood studio or a circus is quite so critical.
The Reference Shelf:
- A Bloomberg graphic tracking China’s outbound M&As.
- A QuickTake Q&A on Anbang.
- A QuickTake explainer on China’s efforts to protect its currency.
- New York Times stories related to HNA.
— With assistance by Jing Yang De Morel, Prudence Ho, Sree Vidya Bhaktavatsalam, and Hui Li