Dajia kept deed woes from hotel bidders: lawyer

New York

CHINA'S Dajia Insurance Group knew there were questions about the ownership of some US luxury hotels it put up for sale last year but did not tell more than a dozen first-round bidders, a lawyer testified in the trial over whether Mirae Asset Global Investments can get out of the deal.

Stephen Glover, one of the attorneys hired by Dajia to oversee the auction of a portfolio of famed hotels such as the Westin St Francis in San Francisco and the Loews Santa Monica Beach Hotel, said in the Delaware Chancery Court trial that his team wanted to "get their arms around" the problem of phony deeds filed to the properties before they disclosed them.

"We wanted to squash this as quickly and effectively as possible," Mr Glover said on Monday at the start of the trial over the busted-deal case.

"It doesn't make sense to talk with buyers about the problem until you have" a plan to deal with it, the attorney added. He said Dajia had informed the two final bidders, including Mirae, in August 2019.

Mirae, which bought the portfolio for US$5.8 billion the following month, cancelled the deal in May, arguing that Dajia had violated the purchase agreement by withholding information about the alleged deed scam as part of a cover-up designed to ram the deal through. Dajia, which assumed most of the assets of struggling Chinese insurer Anbang Insurance Group, says it satisfied all terms of the sale and that it should have closed in April as scheduled.

The buyout is among nearly 20 deals that have fallen apart so far this year, many of which cite the Covid-19 pandemic as one of the causes. Mirae also points to the coronavirus' decimation of the hotel industry as another reason to pull out.

"I think fundamentally, they got cold feet," Mr Glover said. "They were very nervous about this transaction in an environment where hotel business was suffering generally and financing had become more expensive."

According to Mr Glover, Dajia contacted 55 prospective buyers about the hotel portfolio, 17 of which actually submitted bids. Dajia winnowed that to a final group including Mirae.

Mr Glover said Mirae executives determined "it should not be an issue" after being notified about concerns over phony title transfers. Mirae instead agreed to a "litigation plan" that succeeded in getting the phony California deeds thrown out before the deal's closing date.

The hotel portfolio was put together by Wu Xiaohui, the former chief executive officer of Anbang, as part of an US$18 billion buying binge starting in 2014. The Chinese government jailed Wu on fraud and embezzlement charges four years later and seized the hotels.

Prior to Wu's jailing, he signed an agreement empowering four Delaware shell companies to sue on his behalf if the hotels were expropriated by the government. Dajia contends the agreement is fictitious.

Zhongyuan Li, a Dajia executive involved in the hotel sale, testified on Monday that the agreement was not stamped by with the company's official chop and said one person who signed it claiming to be a current director actually left the board in 2015.

Dajia contends that a group of "fraudsters" used a 26-year-old Uber driver to file phony title transfers for the California hotels, then set up arbitration panels under a Delaware law that issued awards to the shell companies totalling US$936 billion over the hotel seizures. These awards were eventually thrown out. BLOOMBERG