You are here
Don't expect a bargain from Chinese conglomerates' asset dumps
YOU might think the trophy real-estate assets of distressed Chinese conglomerates would go at fire-sale prices. The latest deals show that's not the case.
The US luxury hotel collection of Anbang Insurance Group is a prime example. The once-sprawling Chinese company, which Beijing rescued early last year, is close to selling a suite of properties it bought for US$5.5 billion three years ago.
The insurer has received bids of up to US$5.8 billion, including from Blackstone Group, which initially sold those hotels to Anbang in 2016, according to the Financial Times.
The properties, formerly known as Strategic Hotels & Resorts, were among Anbang's biggest splurges. They include JW Marriott Essex House in Manhattan and the Westin St Francis in San Francisco.
Anbang isn't the only lucky seller. HNA Group, once a high-flying conglomerate that's now saddled with US$80 billion in debt, has had its own string of successes.
It sold stakes in Hilton Worldwide Holdings and related companies for around a US$2 billion profit; chalked up gains of around US$300 million on three pieces of land in Hong Kong; and was apparently in the black when it unloaded a 30 per cent stake in aircraft lessor Avolon Holdings.
Thanks to hedges, it avoided major damage when it backed out of its investment in Deutsche Bank. That takes the sting out of creditors' seizure of its golf courses and a US$70 million loss on the sale of a Hong Kong plot.
This healthy bidding is curious for two reasons. First, it was the tide of Chinese buyers - flush with cheap money - who helped drive the luxury real-estate market to stratospheric levels after the financial crisis. That changed two years ago when Beijing put overseas property on a "restricted list" of acquisition targets to stem capital outflows.
Anbang's buying spree, funded by the sale of high-risk, high-yielding investment products back home, thus came screeching to a halt.
Along with HNA and Dalian Wanda Group, the company was forced to unwind its purchases of flashy assets. This crackdown removed a major source of demand for US real-estate treasures.
Meanwhile, a downturn in US hotel occupancies is afoot. With the trade war deepening, it's worth asking whether the Federal Reserve's pause in interest-rate rises is enough to keep the sector aloft.
Anbang is now exploring the sale of the Manhattan office building that houses its US headquarters at 717 Fifth Avenue, as well as its Dutch and Belgian insurers.
Meanwhile, HNA has put 245 Park Ave, a skyscraper bought for a near-record US$2.21 billion, on the block.
The fate of the Waldorf Astoria hotel, which Anbang acquired for US$1.95 billion in 2015 - the biggest amount ever paid for a single existing US hotel - is not clear.
What is clear is that those bargain-basement prices everyone expected have not materialised - perhaps because Beijing, reluctant to handicap domestic companies, is not clamouring for quick debt repayments.
Or maybe these spendthift conglomerates were not such terrible investors after all.
Reports that HNA had to sell its Manhattan skyscraper at a loss are not necessarily surprising: Tenants include a police precinct tasked with protecting Trump Tower. The Committee on Foreign Investment in the US reportedly informed the Chinese company it had to sell. BLOOMBERG