Anbang's Good Bad News

(Bloomberg Gadfly) -- Fire sale and good aren't words usually found in the same sentence. But Anbang Insurance Group Co.'s Beijing-engineered potential asset sale, which will inevitably bring losses for the company, doesn't seem to be worrying investors.

Bonds of Dutch insurer Vivat NV, which Anbang acquired two years ago, have been rising, going from a record-low 92.7 percent of par in June, when Anbang's Chairman Wu Xiaohui was detained for questioning, to 97.1 percent currently. Anbang Life Insurance Co.'s yuan-denominated 2025 notes, while thinly traded, are yielding 5.62 percent, versus 4.85 percent for top-rated 10-year corporate debt in China.

Domestic stocks in which Anbang has significant holdings haven't suffered that much either. China Minsheng Banking Corp.'s Shanghai-traded shares are up 7.4 percent since the start of June, while department store operator Dashang Co. has risen 7.5 percent.

Those gains seem counter-intuitive.

Unlike Dalian Wanda Group Co., another debt-laden serial acquirer that had to sell domestic assets, Anbang will find its overseas holdings hard to shift. Hotels are illiquid and insurance companies are prone to government scrutiny. They'll also attract a much smaller pool of potential buyers with other cashed-up Chinese firms out of the picture.

Take Manhattan's Waldorf Astoria hotel, which Anbang bought for a record $1.95 billion in 2014. Not only is it currently being converted into luxury condominiums, but it comes with a 100-year operating lease -- rather off-putting in a weak real estate market.

Thanks to Anbang and its compatriots, China is now the second-largest foreign investor in U.S. real estate, accounting for 30 percent of all Manhattan transactions so far this year, according to Morgan Stanley. However, commercial property sales volumes in North America slumped 9 percent in the first half, with Manhattan down 55 percent.

Perhaps one reason investors aren't punishing Anbang is because they believe a slimmed-down firm with fewer trophy assets would be more manageable and have less need for a government bailout. Anbang has always had a duration mismatch issue: Some of its short-term policies promise returns as high as 8 percent, according to Bloomberg Intelligence analyst Steven Lam, whereas hotels and properties are a much longer-term proposition, and have lower rental yields.

Anbang's days as a high-growth insurer were numbered when it was restricted from selling aggressive policies in May.

A forced sale of assets may mean distressed prices, but it will at least bring in the cash Anbang needs to continue to thrive onshore in its core area of insurance. The pressure to sell high-risk products would also be reduced.

Longer term, this bad news could be good for Anbang. Investors are right to recognize that. 

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

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.

1. The ban on Anbang was for three months and expires soon. However it's unclear whether the insurer will be allowed to resume sales of similar new products after that.

To contact the author of this story: Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net.

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.