The age of Anbang

Blockbuster banking takeovers are unlikely prospects in China, if only because all but one of the leading lenders has the state as its majority shareholder.

The only real exception is China Minsheng Bank.

It has been the subject of at least one potential takeover move. When state insurer China Life said that it wanted to raise its holding in Minsheng in 2011, Shi Yuzhu, founder of Giant Interactive and likewise an investor in the bank, took to his weibo to protest at what he suspected was a bid to gain control.

“China Life, please stop lurking behind Minsheng. China’s only major private bank… should not retrogress into a state-owned one… Give the private sector a tiny little space,” he pleaded.

In fact Shi had been raising his own stake in Minsheng and the bank’s shares surged nearly 7% following his remarks, which were soon being dubbed as “the most valuable weibo post ever”.

(Shi was later asked “out for coffee” by stock regulators, who told him to stop discussing price-sensitive information on his microblog.)

That public fracas served as a reminder of the fragmented ownership structure at Minsheng, which is unique in the context of Chinese banking. Until recently, no single shareholder had more than a 10% stake, meaning a hostile takeover was a feasible possibility.

Is it on the agenda again? Since late last year, the fast-growing insurer Anbang (the little-known new owner of the Waldorf Astoria, see WiC256) has come to own more than 10% of Minsheng after an extensive buying spree. Last weekend investors were further rattled by news that Minsheng’s president Mao Xiaofeng had resigned, reportedly because of a corruption investigation. Not surprisingly this had led to frenzied speculation among analysts who are wondering what the future holds for China’s “most special bank”.

Why is Minsheng different?

Regular WiC readers should be somewhat familiar with Minsheng’s history. It was founded in 1996 by Jing Shuping, then the chairman of the All-China Federation of Industry and Commerce (see WiC38). A large group of the federation’s members chipped in start-up capital to create Minsheng, which was formed with the goal of providing financing for private enterprises. Founded with around 60 key shareholders, this helps to explain why ownership remains diffuse even today. (The biggest single investor at the time of the bank’s launch was a Guangzhou firm, which owned only a 6.5% stake.)

Lacking a dominant shareholder, the government has instead played a dominant role in the bank’s affairs. For instance, the appointment of its top management has to be approved by the China Banking Regulatory Commission and there is also an influential Party committee inside the company.

The result is that Minsheng has never really been able to identify itself as a truly private sector firm.

Instead, its identity can be confusing.

“Minsheng was founded as a privately-owned, state-run and Party-controlled entity,” the magazine Business says of the bank.

This disequilibrium has looked increasingly unstable, especially as the central government has given an approving nod to the private sector to set up banks of its own. Startups are being launched by Chinese internet giants with a mandate to challenge the dominance of the state lenders, for instance. But if Beijing’s reformers want a real private sector bank to shake the sector up, why not try Minsheng? With a market value of Rmb300 billion ($48 billion) and Rmb4 trillion in assets, it’s already a banking giant in its own right.

In this new climate, if a dominant investor could secure control of Minsheng a major new challenger to the big four state banks would emerge almost overnight.

Enter Anbang?

As we reported a year ago, Anbang is a company in a hurry (see WiC226). The insurer has made plain it likes the bancassurance model (using banking distribution channels to sell insurance products). Its ambitions in this regard became evident in September 2013 when it accumulated a 5% stake in Minsheng, emerging as one of the lenders’ top 10 shareholders. This investment likely cost about Rmb8 billion (based on Minsheng’s average price in the first half of 2013). But the insurer has been on a fresh buying spree since November. According to the China Securities Journal, Anbang raised its stake in Minsheng on 12 occasions in less than three months, splashing Rmb38 billion on Minsheng shares in Shanghai (the bank is also listed in Hong Kong).

In fact, Anbang has now raised its Minsheng stake to about 20%, the newspaper said, and is easily the bank’s largest shareholder (the second biggest owns less than 8%).

Will Anbang continue to buy?

In an emergency conference call over the weekend (arranged after the unexpected departure of Minsheng’s president Mao Xiaofeng), Minsheng’s chairman Hong Qi told investors that Anbang sees its holding in Minsheng as a “financial investment”.

But few seem to believe that Anbang has spent Rmb46 billion on Minsheng shares just to be a passive investor.

Guangzhou Daily suggests Anbang may continue to increase its Minsheng holding to 25%, a threshold that would allow Anbang more say in picking the board.

Caijing Magazine also expects Anbang to accelerate its “infiltration” of Minsheng.

“A bidding war to gain control of Minsheng could happen at any moment,” the magazine predicts.

Any other potential suitors?

Interestingly enough, Anbang’s recent stock purchases have coincided with some of the lenders’ most powerful shareholders divesting. A number of the private sector tycoons who co-founded the bank have been cutting their stakes since December last year.

Liu Yonghao, chairman of New Hope and a long-term board director of Minsheng reduced his stake to 7.7% from 8.4% in December, the China Daily has reported.

Guo Guangchang, chairman of conglomerate Fosun, also disposed of his entire 0.13% stake in Minsheng earlier this month.

Some of them could simply be taking profit. After all, the share price climbed 43% in 2014.

There are also suggestions that other private sector entrepreneurs are waiting on the sidelines, readying themselves for the right opportunity to pounce.

In May last year we reported on the establishment of a new financial group known as China Minsheng Investment (or CMI, see WiC237). With start-up capital of Rmb50 billion, CMI was jointly created by many of the same businessmen that founded Minsheng. It came about after the retirement of Minsheng’s long-serving chairman and president Dong Wenbiao (the roles were thereafter split between Hong Qi and Mao Xiaofeng).

At the time, media outlets such as Economic Observer and Century Weekly said that CMI would put together an investment fund that could be as large as Rmb300 billion. CMI’s primary investment target was thought to be Minsheng itself.

“Dong’s ultimate goal is the control of Minsheng,” Business magazine has suggested. “However this ambition is obviously being confronted by a fierce rival in Anbang.”

Seeing tycoons like Liu and Guo sell down their Minsheng stakes may suggest that they are throwing in the towel and that Anbang is the better-positioned to take control.

At the same time China Life, the state giant that has been lurking in the background since 2011, is still on the scene too. According to the Shanghai Securities News, the insurer increased its stake in Minsheng to nearly 5.6% this month (compared with its 4% holding in September 2014).

“Even China Life has joined the Minsheng tussle,” the newspaper says, although it suggests that the insurer may just want to have more of a say in the event of a bidding war over Minsheng’s future.

How about the fate of President Mao?

At 42, Mao Xiaofeng was the youngest president to work at a major bank. Politically, he held the important position of Minsheng Party boss too. So if reports in the domestic media are accurate, he might have become the most senior banking official to (so far) be ensnared in Xi Jinping’s ongoing anti-corruption campaign.

Graft-busters now increasingly look like they have turned their focus to the banking sector after a board member of Bank of Beijing was also put under investigation for “serious disciplinary violations this week, according to Shanghai Daily.

That said, Century Weekly suspects that Mao’s case is more likely part of the ongoing probe into Ling Jihua, previously the political fixer of the former Chinese leader Hu Jintao.

Some of the latest revelations against Minsheng’s Mao are fascinating. For instance, there are reports that he set up a “madams’ club” for the wives of his Party superiors (including Ling’s) so they could draw salaries from Minsheng.

The more relevant question at this point, however, is whether the investigation into Mao has anything to do with Anbang’s recent investment run at Minsheng.

So far there isn’t a convincing argument that the two topics are related. The Hong Kong Economic Times says that Anbang might have support from senior circles for a takeover of Minsheng, for instance, but it also acknowledges that the situation seems too chaotic to confirm a deeper plan.

“The only certainty is that there will be more unfolding drama,” it concludes.

So who is behind Anbang?

Southern Weekend published a long article late last month tracing Anbang’s background. The newspaper, known for its more market-oriented editorial stance, then followed up with a public apology, saying that the report contained “inaccurate information” without specifying what it had got wrong. But the article had suggested that Chen Xiaolu, son of Chen Yi, one of the 10 founding figures of the People’s Republic of China, was Anbang’s de facto owner. It also said that Wu Xiaohui, Anbang’s chairman and CEO, was a grandson-in-law of Deng Xiaoping, and hinted that political connections like these have fuelled its stellar rise.

Prior to Southern Weekend’s apology, Chen had told Century Weekly that he owned no shares in Anbang and that he only served as a “consultant” to the company. That magazine also reported that Wu has separated from Deng’s granddaughter, and that the Deng family has been trying to distance itself from Anbang’s business.

That did little to dampen the speculation, mind you, including comments from respected economist Wu Xiaobo that Anbang’s plans for Minsheng might be linked to the tug of war between private sector bosses and a group of unidentified princelings (the term for the offspring of the Party’s early leaders, some of whom are alleged to be Anbang’s leading backers).

Certainly, Anbang’s chairman Wu seemed to be at ease, despite the growing tension over Minsheng’s future. On January 31 he was even spotted at Harvard University, giving a career talk to students.

Perhaps Wu’s confidence is because Anbang is positioning itself for a bigger move. As Xiang Xiaotian, a popular finance columnist on Sina’s portal, has suggested, the investigation into Mao might lead to more managerial departures and deeper internal instability at the bank, giving Anbang a further opportunity to stake its claim.

Xiang also wrote about the potential for Anbang to become as powerful as Ping An, another major Chinese insurer reputed to have strong political ties.

“Perhaps in years to come we would see two bancassurance giants,” he predicted, “with Ping An in the south and Anbang in the north.”

And how about Shi Yuzhu, the founder of Giant Interactive, who was previously so reluctant to countenance Minsheng falling into the hands of a large insurer?

He seems to have changed his tune this time.

“Anbang to take control of Minsheng? I think it is very good,” Shi suggested on his weibo this week. “With a big shareholder to take care of things, Minsheng may be even better in the future”.

As so often the case in China, Shi’s personal connections are also giving him hope for a favourable outcome in the battle for the bank’s future.

“At the end of the day Anbang’s Wu Xiaohui is my classmate,” Shi explained. “And I will kick his ass if Minsheng’s shares take a dive.”

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