Jan 14, 2014 04:53 PM

In Depth: Insurance Group Bets Big on Banking and Real Estate – and Pushing Regulatory Limits

(Beijing) – In the capital's central business district south of the iconic CCTV building are two parcels of land busy with construction workers toiling on what is expected to be one of the city's most expensive commercial and residential complexes.

The owner of the land, Anbang Insurance Group (AIG), is a Shenzhen-headquartered private investment conglomerate that few people knew about three years ago. The company's remarkable rise in such a short period of time is largely credited to the chairman Wu Xiaohui's charisma and business acumen – and his apparent success at pushing regulatory limits.

A source close to him said Wu spent his early years working for an infrastructure investment company in Shanghai before founding Anbang Property & Casualty Insurance Co. (APCI) in 2004. AIG was established seven years later and owns 90 percent of the APCI.

Wu, who is in his late 40s, comes from the entrepreneurial city of Wenzhou in the eastern province of Zhejiang, another source close to him said. Beyond that, details about the man and his business empire are cloudy, except that he was once married to the granddaughter of a late state leader, the source said.

Eighteen months after it was established, at the end of 2012, AIG already boasted assets of 510 billion yuan. The figure surpassed 600 billion yuan in 2013, a source familiar with the company said.

Much of the growth apparently owes to the company's 35 percent holding in Chengdu Rural and Commercial Bank (CDRCB), which it acquired for 5.6 billion yuan in mid-2011. In less than three years, the bank's assets have grown from slightly more than 100 billion yuan to more than 300 billion yuan.

To secure the investment, AIG not only proposed a high bidding price but also pulled some strings with high-level government officials, a source with knowledge of the acquisition said.

More startling than the company's fast growth of assets was perhaps its aggressive expansion into real estate and almost all financial sectors. Apart from the CDRCB, AIG is the controlling shareholder in six insurers, two asset management companies, one financial leasing firm and one property developer. 

"Anbang lacks only a securities firm's license" to cover the spectrum of financial services, an industry observer familiar with the company said. This appears to be about to change. AIG has offered to buy more than 90 percent of Shenzhen-based brokerage firm Century Securities. The two sides are still negotiating.

"He really has big money," Liu Xiaoguang, chairman of state-owned large investment company Capital Group, said of Wu.

Playing Catch-up

AIG's reach into the banking industry goes far beyond Chengdu. Through purchases in the secondary market, it has accumulated considerable shares of China Minsheng Bank and China Merchants Bank (CMB). It also owns 0.2 percent of Industrial and Commercial Bank of China (ICBC).

"Few other insurance companies are a large shareholder in multiple banks, including ICBC, CMB and Minsheng at the same time," a veteran insurance analyst said.

As of May 31, AIG and APCI held 2.76 and 0.43 percent of CMB, respectively. On that day, the bank's general meeting of shareholders voted against a candidate for the board of directors backed by the Anbang group. Since then, the two companies have bought more CMB shares.

On December 9, APCI acquired 1.13 billion CMB shares for 13.68 billion yuan through nine block trades, raising its stake in the bank to 1.26 billion shares. This was the biggest single day of block trading ever in the A-share market.

The bank announced the purchase but refused to disclose the seller's information. Three of CMB's top 10 shareholders quickly said they were not the seller, leaving many observers to wonder whether the bank's two major shareholders – AIG and the Shanghai Motor Corp. – which holds a stake in AIG – initiated the sales.

If that was the case, the transactions would fit the description of a wash trade, which violates the Securities Law, a senior investor who watched the deal said.

"In a typical wash trade, the seller and buyer are controlled by the same entity and the ultimate ownership of the shares remains unchanged after the transactions," he said. Considering the that CMB's shares were sold at about a 10 percent premium over their closing price that day, the transactions looked all the more suspicious, he added.

Wash trades are misleading and those behind them should be punished because they distort the market by faking demand, the investor said. "When ordinary investors see these block trades worth billions of yuan, they would think the stock is sought after and rush to buy in."

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