China's Anbang Hits a Wall in South Korea -- WSJ

By James T. Areddy Features Dow Jones Newswires

After a shopping spree, the company is pulling back as regulators look into its practices

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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 18, 2017).

SEOUL -- China's Anbang Insurance Group dived 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.

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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 18, 2017 02:47 ET (06:47 GMT)