Anbang prompts soul-searching as Morgan Stanley, UBS divided

Bloomberg

One of Hong Kong’s potentially most lucrative initial public offerings in recent years has bankers facing some difficult choices.
Anbang Insurance Group Co., known for its aborted $14 billion attempt to buy Starwood Hotels & Resorts Worldwide Inc., has asked investment banks to pitch for roles on an IPO of its life insurance assets. While the recent dearth of large share sales would normally make it a no-brainer for bankers to participate, Anbang’s request has prompted some soul-searching among the top IPO underwriters.
Morgan Stanley, Hong Kong’s No. 1 IPO arranger in the past decade, decided to pass, according to people with direct knowledge of the matter. Others decided to submit initial proposals to Anbang while they continue to debate whether to see the process through, the people said. UBS Group AG put aside earlier reluctance to work with Anbang and is joining other banks including Goldman Sachs Group Inc. that are pitching for roles, people familiar with the banks’ decisions said, asking not to be identified as the information is private.
Bankers’ deliberations on whether to work with Anbang have centered on whether the company would provide enough details on its ultimate ownership structure, the people said. Some banks that made an initial decision to pitch are hoping the scrutiny of the Hong Kong exchange will compel Anbang, whose chairman has been linked to the family of former paramount leader Deng Xiaoping, to be more forthcoming than it has in the past, according to the people.
Several underwriters that already responded to Anbang’s request for proposals are prepared to withdraw from the process if the insurer doesn’t provide adequate information to satisfy their internal compliance departments, the people said. The banks haven’t yet made any commitment to work with Anbang, according to the people.

Tempting Size
“The cautious attitude of the major investment banks reflects the uncertainty whether the Anbang IPO deal can successfully go through,” Zhou Min, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said in an e-mailed response to questions Friday. “Aside from the opaque ownership mix, I believe what concerns them most is the sustainability of its aggressive asset expansion model, fueled by short-term savings-type insurance products.”
Anbang said in an e-mailed statement it has previously worked with banks including Bank of America Corp., Credit Suisse Group AG, Deutsche Bank AG, Evercore Partners Inc., Goldman Sachs, Nomura Holdings Inc. and PJT Partners Inc. The company declined to comment further.
Then there’s the potential size of the deal. When Anbang first began mulling an IPO in late 2014, it was considering raising at least $2 billion, people familiar with the matter said at the time. Its life unit’s consolidated assets swelled more than sevenfold last year to 921.6 billion yuan ($138 billion), indicating the size of the deal could have increased as well. That’s an attractive prospect after fundraising from first-time share sales in the city fell by more than half this year to $9.7 billion.
For UBS, the decision to seek a role on the IPO shows a newfound willingness to advise Anbang, the most prolific overseas dealmaker among Chinese insurers, according to people with knowledge of the matter. The Swiss bank didn’t work with Anbang on any deals under the leadership of previous Asia Pacific investment banking chief Matthew Hanning, the people said. Hanning stepped down earlier this year and was replaced by global equity capital markets head Sam Kendall.

Chinese Banks
Goldman Sachs had turned down a request this year to advise Anbang on a proposed overseas acquisition in order to seek a role with another party in the deal, the people said. The IPO of Anbang Life Insurance Co. gives Goldman Sachs another chance to earn additional fees from the company.
Some banks may choose not to work with Anbang because they don’t have as strong a relationship with the insurer as other advisers, or they may have conflicts due to other deals they’re working on for Anbang competitors, the people said. Representatives for Goldman Sachs, Morgan Stanley and UBS declined to comment.
Getting in on major deals like Anbang’s has become more important for the Western bulge-bracket banks as their Chinese rivals increasingly dominate the Hong Kong equity market. Seven of the 10 most active IPO arrangers in the city this year were Chinese, led by Haitong Securities Co. with a 9.1 percent market share, according to data compiled by Bloomberg. Goldman Sachs, the top Western arranger on the list this year, only ranked fifth among all IPO underwriters in the city, the data show.
Disclosure Calls
Anbang, led by Chairman Wu Xiaohui, has faced calls for more disclosure by Standard & Poor’s Ratings Services, which repeatedly sought to analyze the company’s creditworthiness ahead of its attempt to acquire Fidelity & Guaranty Life in the U.S. The rating agency, which said in February it was working with Anbang to resolve its questions, maintained in July it was still unable to fully ascertain the insurer’s financial position.
Hong Kong IPO arrangers must also contend with recent regulatory developments clarifying they can be held criminally liable if they sign off on offer documents containing untrue statements. As a private company, Anbang hasn’t been required to disclose as much information as its publicly traded peers.
Anbang is controlled by a group of companies owned by about 100 people with ties to the insurer’s chairman, many of them hailing from Wu’s home county of Pingyang on the eastern Chinese coast, the New York Times reported Thursday. At least 35 of Anbang’s corporate shareholders can trace all or part of their ownership to relatives of Wu or his wife, according to the report.
Credit Suisse and Deutsche Bank, which have both worked with Anbang in the past, are each seeking a role on the IPO, the people said. Deutsche Bank advised Anbang on its purchase of Dutch insurer Vivat NV, data compiled by Bloomberg show. Citigroup Inc. and JPMorgan Chase & Co. are also pitching to work on the offering, according to the people.
Unorthodox Style
At least six Chinese-owned firms are seeking a role on the Anbang listing, including China International Capital Corp. and Citic CLSA Capital Markets Ltd., the people said.
Citigroup and JPMorgan declined to comment, while representatives for Credit Suisse and Deutsche Bank said they couldn’t immediately comment. A spokeswoman for Citic CLSA declined to comment, while a representative for CICC didn’t immediately respond to a phone call and e-mail seeking comment.
Anbang has drawn attention as much for its unorthodox dealmaking style as for its pace of acquisitions. The insurer dropped its bid to buy the Starwood hotel chain at the last minute with almost no explanation earlier this year, in what would have been the largest purchase of a U.S. asset by a Chinese company, while it has also sought to upend established auction processes.
The firm, which has announced at least $13.5 billion of overseas acquisitions in the last two years, is still trying to complete the purchase of Fidelity & Guaranty Life that has been pending since November last year. Anbang withdrew its request for regulatory approval with the New York Department of Financial Services and plans to refile “in the near future,” according to a May regulatory filing.