Despite IHG denial, why Anbang's infatuation with hospitality persists

(Anbang's, CHina's infatuation with hospitality)

China's Anbang Insurance Group continues to pop up in hotel M&A discussions. Only this time, it's denying it. Reports surfaced over the weekend that Anbang was looking at acquiring UK-based InterContinental Hotels Group, owner of the Holiday Inn and Crowne Plaza brands. Anbang is repudiating reports that it is considering a bid for another major Western hotel company.

In March, the company acquired Strategic Hotels and briefly became a hurdle in Marriott International’s plan to acquire Starwood. With regulators examining the insurance company’s international bids, it backed down and the Marriott-Starwood merger is now months away from finalization.

The UK’s Sunday Times, citing anonymous sources, reported that Anbang is "in the early stages" of considering a £7 billion offer for IHG, which declined to comment on the rumors. Chris Winans, a spokesman for Anbang at the public relations firm Hill & Knowlton Strategies, said that “Anbang has no plans to make a bid and is not considering an offer for InterContinental,” and declined to say anything else about the potential deal.

IHG has a market value of $8.2 billion, and rumors have been flying about a possible takeover in recent months, especially in the wake of Marriott’s Starwood acquisition.

Whether true or false, the rumors may still be helpful for IHG. Since they began, shares in the company rose by 1.6 percent.

Why Chinese Companies Want Western Hotels

The move to buy IHG would be only the most recent in the latest trend of Chinese acquisitions of Western hotels and hotel companies. Anbang made its hospitality entrance two years ago when it purchased the iconic Waldorf Astoria in New York. Sunshine Insurance Group, meanwhile, acquired the Baccarat Hotel for a record $2 million per room. More recently, Beijing-based HNA Group bought Minnesota’s Carlson Hotels in a deal valued at as much as $2 billion.

In late May, EY’s “Global Hospitality Insights” noted that Asian investors are “attracted by high property yields and safe investment environments abroad.” Asian cross-border hotel transactions reached $11 billion by the end of last November, a 24-percent year-over-year increase. China’s cross-border hotel investment volume also increased from $240.5 million in 2011 to $4.9 billion last November.

A recent case study presented by Russell Gao, a Goldman Sachs VP, demonstrated that Chinese insurers investing overseas "can bring significant benefits from potentially higher investment returns and from greater risk."

Another major factor attracting investment is the growth in Chinese tourists to the U.S. The number of Chinese tourists traveling outside of the country is expected to double to 234 million by 2020, accounting for $422 billion in spending, according to a recent report by China Luxury Advisors and the Fung Business Intelligence Centre.

“In the case of hotels like the Waldorf-Astoria, they believe they may be able to use domestic connections to bring more tourists to these properties,” Thilo Hanemann, an economist at the Rhodium Group, told The Washington Post in March.

Deny all they want, it's hard to imagine that Anbang is done in the hospitality space.