China rescues Anbang with $12.7b bailout after fraud claims

The fund injection is to ensure Anbang's solvency and protect the policyholders' interests, said the China Insurance Regulatory Commission.
The fund injection is to ensure Anbang's solvency and protect the policyholders' interests, said the China Insurance Regulatory Commission.PHOTO: EPA-EFE

HONG KONG • China is injecting 60.8 billion yuan (S$12.7 billion) into Anbang Insurance Group as it attempts to contain the fallout after the company's former chairman was accused of masterminding a multibillion-dollar fraud.

The move is aimed at ensuring Anbang's solvency and protecting policyholders' interests, the China Insurance Regulatory Commission said yesterday.

The government is trying to revamp and stabilise a company that burst onto the global scene in 2014 with the purchase of New York's Waldorf Astoria hotel, but was seized by regulators in February.

Anbang's former chairman Wu Xiaohui is accused of masterminding a massive fraud, using unauthorised sales of investment-type policies to prop up the acquisitive company's capital.

The case against him is one of the most striking illustrations of China's war against financial risk.

In court last week, prosecutors alleged that Wu's actions had threatened national financial security.

By injecting capital, the government is protecting the banks that funded Anbang and the public who invested in its products, said Mr Brock Silvers, managing director at Kaiyuan Capital. "A bank failure could trigger economy-wide repercussions, while significant losses for a broad class of retail investors could impact the Communist Party's standing with the general public."

The money will come from the China Insurance Security Fund, an industry-funded body that bails out troubled insurers and had a balance of 116 billion yuan as of January. It plans to hold its stake in Anbang only temporarily.

Much of Anbang's growth was powered by sales of short-term, high-yield products that the company used to fund purchases of long-term assets such as real estate - a duration mismatch that had long worried analysts and regulators.

The charges against Wu alleged wrongdoing going as far back as 2007. He had ordered up fraudulent financial statements and used money raised from fraud for investment, debt repayment and personal use, a Shanghai court said last week. Wu disputed both the facts and the charges.

Anbang's registered capital will be kept at 61.9 billion yuan after the injection, the China Insurance Regulatory Commission said, adding that the company will start to select strategic investors and aims to introduce private capital as soon as possible.

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A version of this article appeared in the print edition of The Straits Times on April 05, 2018, with the headline 'China rescues Anbang with $12.7b bailout after fraud claims'. Print Edition | Subscribe