Anbang Insurance Group's overseas investment strategy

In recent years, Chinese enterprises' global lavish spending and sweeping the real estate market have gradually strengthened the image of an abundant Asian purchaser. Chinese Anbang Insurance Group certainly is the most exposed in the media. Here are a few keys to understand how one of China's larget group invests overseas.

In 2014, Anbang spending $ 1.95 billion in acquiring New York Waldorf Hotel astounded the everyone. However, Anbang never invested blindly. Since this year, it shows more cautions in its “overseas purchasing” due to an overall reconsideration on its overseas investment strategy.

Since September, Anbang’s chairman Wu Xiaohui frequently appears in the United States, Canada and other places. On September 20, China’s Prime Minister, Mr. Li Keqiang attended a dinner hosted by the New York Economic Club at the Waldorf-Astoria Hotel in New York. Wu Xiaohui joined the dinner as a business representative. On September 23, Wu attended the China-Canada Economic and Trade Forum, enunciating the international investment strategy of his group.

“In Europe, Anbang bought VIVAT, a century-old insurance company with nearly 500 billion RMB of total assets in the Netherlands, for only 1 euro... and immediately managed to bring the business into a profitability of 800 million RMB in the first year. Furthermore, it reached 4.3 billion RMB of profits in the first half of 2016. In Asia, Anbang acquired Toyo Life Insurance Company in South Korea, doubling the business and profits in a short period of time,Wu Xiaohui explains. "Anbang’s acquisitions strategy is predicated on three principles: paying attention to alternative costs, choosing costs and selective availability; taking composite cost & benefits and financial benefits into account.

Anbang's overseas acquisition stick to these three principles.

Undeniably, Anbang's fame derives from several unusually remarkable acquisition cases in the last two years. The Chinese group has acquired Waldorf Astoria Hotel in New York, Fidea Insurance Company and Lloyds Bank in Belgium, Toyo Life Insurance in Korea, VIVAT Insurance Company in the Netherlands and Fidelity & Guaranty Life Insurance Company in the United States, successfully extending its financial territory and business to Asia, America and Europe. To win the Waldorf Astoria alone - the prestigious landmark in New York famous for regularly hosting numerous heads of states, Anbang group had to pay nearly 12 billion RMB.

Domestically speaking, Anbang constantly sets off the record of investment. Golden Group, Minsheng Bank, Vanke A and more than 10 listed companies have Anbang's investment presence.

Wu Xiaohui, Anbang chairman © FT

However, instead of showing off the purchase list, Wu Xiaohui prefers to talk about the logic behind it. He stresses that Anbang would consider three angles in international investment.

"First of all, we consider the alternative cost, selective availability as well as the total investment, in addition to that, we also consider the investment location and specific projects. We will conduct a rigorous comparison, screening projects, investment in different countries and industries to discuss them and then choose. This is the first part in decision making."

He says that after identifying the location, industry and the amount of investment, they also look into whether it can bring a stable income, a long-term sustainable cash flow and security. "We invest in projects to meet these three requirements, which are the premises of our investment."

Secondly, Anbang group takes into account the comprehensive benefits. The large-scale enterprise generally specifically considers social values. "For example, at Anbang, our investments focuses on human wellbeing industries, including aging caring, health care and real estate. We attach importance to the comprehensive social benefits of investment projects, without which we wouldn't invest even if promising earnings prospects. We also emphasize greatly environmental protection, green energy and other fields of investment, for example China's largest wind driven generator manufacturer."

According to Wu Xiaohui, the reason why Anbang values the comprehensive benefits of investment lies in a strong sense of social responsibility. "The ultimate social evaluation is whether we are a 'corporate citizen’ or whether we have taken responsibilities as citizens of the earth and communities."

It is worth mentioning that in the group's internationalization process, competitive products as well as the complete legal environment on the market are indispensable. In recent years, Anbang also has accumulated some experience, further achieving better profitability in the acquisition of several major targets.

"We symbolically acquired the Dutch VIVAT Insurance for 1 euro in Europe last year. With the help of Anbang, VIVAT turned to be profitable in 6 months with 4.3 billion RMB profits in the first half of this year, indicating that Chinese enterprises not only have the ability to export capital, but also export the managerial and technical capacity.” says Wu Xiaohui. It previously took VIVAT one month to deal with settlements of claims while Anbang’s customers in China can resolve their claims in 16 minutes 22 seconds through its APP. By applying the APP designed by Anbang, VIVAT’s claim time has been greatly reduced, effectively enhancing the user experience and increasing the overall efficiency.

The third principle is profitability. For a private enterprises, it is impossible to survive without profit. "Therefore, we must consider the cost of investment and return. "We have a strict investment principle stipulating the ROI couldn’t be less than 10%. We will choose long-term asset allocation, such as VIVAT investment in German bonds that brings considerable benefits. Anbang’s asset allocation is determined in accordance with respective markets and industries in their specific circumstances." says Wu Xiaohui.

Chinese enterprises’ overseas movement is not blind.

In fact, Anbang is only a microcosm of Chinese enterprises’ outbound activities. The trend of “going out” is irrevocable in the globalized age. For many Chinese groups, the main concern is "how" and if it's "worth the effort".

Let's get back to Anbang, as a series of actions have recently echoed their "three principles". Earlier this year, Starwood’s acquisition case won global attention as Anbang and Marriott continuously raised the price tag to compete. At first, Anbang seemed committed to win Starwood over, raising the offer to 14.15 billion US dollars against Marriott. However, foreign media quoted a source, saying that Anbang would withdraw from the acquisition of Starwood on April 1st. On September 23, Marriott finally completed the acquisition of Starwood Hotels and Resorts International Group.

Anbang’s withdrawal has more to do with a thorough weighting between cost and profit. An Anbang’s anonymous insider told reporters that the exit was not because of "the no more than 15% of the ratio restriction policy on overseas investment" as publicly announced. The source said Anbang did a more comprehensive arrangement in the beginning. "The exit reason rests in the 'price' because of the increasing offer. As soon as Anbang raised the price, Marriott signaled a clear intention of continuing raising the price. For Anbang, it came down to a real problem - whether they should raise the price again”. If they offered more, it meant that the transaction was likely to deviate substantially from Starwood's fundamental price. Anbang would not act impulsively on such a large investment.

Earlier, Wu Xiaohui also mentioned the secret business insight on Anpang’s whopping acquisition of the Waldorf company in his recruiting campaign speech in the US. He said that some judge on the surface that the average acquisition price is overvalued on each room individually, in fact, the fundamental principle of making business decisions are both profitability as well as a sustainable business model.

"This hotel accommodates more than 1,400 rooms, 163,000 square meters of area. 1.95 billion US dollars of investment equals about 73,000 RMB per square meter. With the lifelong property right, we think there is adequate room for profitability. Business decision could not rely on concept, the data support is mandatory. We conducted a detailed analysis of residential prices in the vicinity of New York City, which is about 20,000 - 30,000 RMB per square meter. The price difference is at least 100,000 RMB, therefore the project’s prospective profitability is good."

Chinese private enterprises play an increasingly important role in overseas M&A since last year. In the first three quarters of 2015, the total value of overseas M&A transactions by Chinese enterprises was 40.8 billion US dollars, along with the transaction value of private enterprises increased by over 120%. Chinese enterprises focus more on acquiring a “know-how” rather than a brand.

Yu Liping, Chairman of Rothschild Group in China Region had an exclusive interview with First Financial and said, "M&A industry’s transformation is obvious. The early projects are resource-oriented, now it has gradually turned to food, medical, TMT and other industries. Chinese enterprise are actively looking for high-quality M&A targets in North America, Europe and other mature markets, introducing, the overseas technology, brand into China and beginning to transfer core technology to emerging other Asian markets as well as developing new markets simultaneously.