Month: August 2017

Beijing Blowback Begins: China Orders Anbang To Sell Its Overseas Assets

Two weeks ago, when discussing the troubles plaguing one of China’s conglomerates and “boldest dealmaker”, HNA Group – recently best known for acquiring Anthony Scaramucci’s SkyBridge capital in a transaction that has yet to close – we said that what until recently was one of the world’s most aggressive roll-ups of varied companies from around the globe, including stakes in Hilton Companies and Deutsche Bank, as well as countless Chinese acquisitions, could very soon become the “reverse roll-up from hell”, as the stock price of HNA tumbled, putting the roughly $24 billion in loans that had been taken against HNA stock in jeopardy of breachin their LTV limits, forcing a massive margin call, and potential firesale liquidation of the company’s assets as shown in the chart below…

… which have been hit with the double whammy of various rating agency downgrades in recent months, further eroding the collateral value of all of HNA’s various assets.

Yet while the fate of HNA’s conglomerate future still remains largely in the hands of the market, which could easily prompt a firesale if it were to push HNA stock low enough, another Chinese conglomerate may not have the benefit of the market’s potential generosity, because according to Bloomberg, Chinese authorities have asked HNA’s peer, Anbang Insurance Group, the insurer whose chairman was recently detained in June and was classified as a potential “systemic risk” to China’s economy, to sell its overseas assets.

In addition to demand a liquidation of many if not all assets acquired by Anbang over the past three years, the government also asked the company – whose Chairman will surely comply following his brief “detention” – to bring the proceeds back to China after disposing of holdings abroad, suggesting not only growing concerns about Chinese capital outflows, but Beijing’s apparent intention to undo the massive Chinese M&A wave that swept the globe from 2014  through most of 2016, and led to the infamous “Chinese acquisition premium.”

Bloomberg notes that it is not clear yet how Anbang will respond, and in a WeChat message, the insurer said that “Anbang at present has no plans to sell its overseas assets,” although that is sure to change once Beijing asks again, less politely this time. “Currently, Anbang’s various businesses and operations are all normal, and the company has ample cash and sufficient solvency capabilities.”

Anbang, together with HNA, Wanda and Fosun, were the four most prominent Chinese conglomerates which unleashed a buying binge across the globe, fueled by soaring sales of investment-type insurance policies. Since 2015, the four companies completed a combined $55 billion in overseas acquisitions, 18% of Chinese companies’ total, and according to some, were instrumental in accelerating China’s capital outflows over the same period.

Anbang first emerged in the public arena with its high profile 2014 acquisition of New York’s Waldorf Astoria hotel. Subsequently, Anbang and its peers acquired such trophy assets as AC Milan, Legendary film studios and Hilton Worldwide.

Anbang alone made billions in acquisitions in such businesses as the Westin St. Francis, InterContinental Miami, Rabobank’s mortgage portfolio and various other M&A targets around the globe.

However, it all ended with a thud in mid-June, when Anbang Chairman Wu Xiaohui was detained for questioning, while the policies fueling the company’s growth have been all but banned by regulators. At this moment Anbang is merely a shell corporation, with virtually no new business creation, one whose massive debt load threatens to careen the company soon if it does not find sources of cheap liquidity and fast.

At a twice-a-decade conference on financial regulation convened by President Xi Jinping this month, policy makers pledged to rein in corporate borrowing and said that preventing systemic risk was an “eternal theme.”

Making matters worse is that Anbang’s rise in recent years was fueled by sales of lucrative wealth-management products that offered among the highest yields compared with peers, a key spoke of China’s $9 trillion shadow banking universe. China’s insurance regulator this year started clamping down on what it termed “improper innovation” and tightened rules on high-yield, short-term investment policies. Anbang and other aggressive insurers such as Foresea Life got caught up in the crackdown.

Where Anbang’s death spiral could turn especially aggressive, is if Anbang customers start surrendering their policies and stop buying new ones, a feedback loop that would accelerate a continuing cash drain at the company, while forcing its existing product suite of wealth products to default, leading to the biggest risk facing China’s economy: a shadow bank run.

One Anbang product, called Anbang Longevity Sure Win No. 1, boosted the firm’s life insurance premiums almost 40-fold in 2014 by offering yields as high as 5.8 percent. That helped provide fuel for the firm’s more than $10 billion of overseas acquisitions since 2014 and equally ambitious investing in the domestic stock market.

If investors realize that not only China’s M&A party is over, but that the shadow banking sector is facing a potential default cliff, the scramble to recover invested capital will be unprecedented.

For now, Anbang can delay the inevitable cash call by following Beijing’s demands, and slowly – at first- begin liquidating its trophy offshore assets, and repatriating the proceeds, effectively inverting the outbound M&A surge that marked the past three years. The good news is that at least at this moment, there are plenty of willing buyers for the upcoming Anbang firesale..

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Trump Must Embrace His Revolutionary Self Or Politically Perish

Authored by Andrew Korybko via OrientalReview.org,
President Trump’s first six months in office have left his supporters with decidedly mixed feelings.
There are those who still “believe” in him and are convinced that he’s perfe…

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Hong Kong Interbank Rates Spike To Highest Since Lehman

For only the third time since Lehman, the price of liquidity in the Hong Kong Dollar interbank markets has exploded higher.

Overnight HKD Hibor soared over 60 basis points to 0.71407% in Monday trading – the highest since October 2008…

 

Note that the two previous spikes were around year-end, so this is unusual in both its velocity and size.

Of course, the narrative of a panic in Asian liquidity is not a good one for supporting risk assets and so the spike is being dismissed as a one-off due to several factors (as Bloomberg reports)…

Monday’s rise in Hong Kong dollar overnight interbank rate was due to major fund providers being more cautious in lending at month-end, and because of demand from some market players, a Hong Kong Monetary Authority spokesperson writes in an emailed reply to questions from Bloomberg. Interest rates subsided when fund providers responded by lending out more Hong Kong dollars. Relatively large movements in short- dated interest rate Monday was probably a result of thin market conditions ahead of the month-end. The market continued to function normally.

 

Monday’s sudden spike in HKD overnight funding cost is probably due to short-term funding activities, likely for I Squared Capital’s purchase of Hutchison Telecom’s unit and HSBC share buyback announcement, says Angus To, deputy head of research at ICBC International Research.

Rate likely to drop soon as HKD liquidity remains ample in general, To says in a phone call.

So just ignore the fact that the HKD liquidty markets just exploded due to month-end (well it hasn’t before – see chart) and some M&A (there’s been no M&A in the last 9 years?)… it’s probably nothing.

 

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Rep. Brad Sherman (D-CA) Runs From Awan Bros. Question Like A Coward

Independent journalist Austin Fletcher went to this year’s Politicon in Pasadena, CA to cover the festivities and interview some folks – one of whom was Democratic congressman Brad Sherman, from Sherman Oaks, CA.

After cracking a cardboard joke about “Sherman from Sherman Oaks” I’m sure his wife never gets tired of, Fletcher asked a question about the Awan brothers – Debbie Wasserman Schultz’s Pakistani IT staffers who had access to the emails of the entire House of Representatives – including Brad Sherman, who is a senior member of the House Foreign Affairs and Financial Services Committees, and is the top Democrat on the Subcommittee on International Terrorism, Nonproliferation and Trade.

Witness a man who collects $174k from the taxpayer dodge a simple question. Of course, Sherman probably also realizes House Democrats have been severely compromised by the Awans, and anything he says or does can and may be used against him in a court of law.

Asked Rep Brad Sherman about DWS’ IT consultant Imran Awan who was arrested fleeing the country @RogerJStoneJr @RealAlexJones @PrisonPlanet pic.twitter.com/2lH7E9daI5

— austen fletcher (@fleccas) July 30, 2017

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Australia – CoreLogic house prices (July): +1.5% m/m (prior +1.8%)

Data from CoreLogic for house prices for July
Across the capital cities +1.5% in July
– +3.1% for Melbourne, Sydney +1.4%
– Over the three months to July 31, the combined capitals +2.2% (prior +3.6%)
CoreLogic head of research Tim Lawless

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