China’s Fosun Sets Its Sights on Private Banks
The Shanghai conglomerate has a budget of $1 billion to $1.5 billion for each overseas financial acquisition
The conglomerate that began as a Chinese drugs distributor two decades ago and went on a buying binge overseas in 2010, has in the past 12 months acquired $8 billion of insurers and other financial firms, expensive real estate and brands like Cirque du Soleil and Silver Cross, according to Dealogic.
Fosun is in the process of buying German private bank Hauck & Aufhauser for $233 million, which is awaiting German regulatory approval. It is also attempting to buy half of Belgium’s BHF Kleinwort Benson Group SA, which will give it a German private bank as well as British private bank Kleinwort Benson. Fosun’s chief executive said in an interview the group is looking to buy even more assets that cater to China’s rich and wealthy people across Europe and Japan. It currently owns a small stake in BHF Kleinwort Benson.
“We see that a lot of China’s middle class are looking for investments overseas and if we have private banks, we can offer wealthy Chinese families living in China direct access to personalized financial products that invest in overseas markets,” said Fosun Chief Executive Liang Xinjun, adding that it could also offer “Chinese investment products” to the existing clients of the European private banks.
Mr. Liang said Fosun has set aside a budget of between $1 billion and $1.5 billion for each financial firm it is planning to buy. Apart from cash and bank loans, Fosun uses the premiums it gets from the billions of dollars of insurance companies it has acquired in recent years as cheap and long-term investing capital, a model championed by Warren Buffett’s Berkshire Hathaway Inc.
“We think assets in our asset-management business, which include private banking, could reach $100 billion in the next few years from around $7.8 billion at present, through acquisitions and organic growth,” Mr. Liang said.
He said China’s recent market turmoil and declines in Fosun’s share price, which is off 44% from its peak in June, haven’t quelled the company’s ambitions overseas. The Hong Kong-listed company now has a market capitalization of $12 billion, down from $21 billion nearly three months ago, but still up 20% since the start of this year. By contrast, Hong Kong’s benchmark Hang Seng Index is down 12% over the same period.
In fact, “although China’s economy is under downward pressure, we see (falling markets) as a good investment opportunity,” Mr. Liang said, adding that Fosun could take advantage of falling prices to invest in Chinese companies.
Fosun International has 38 in-house investment-team leaders based in cities like London, New York, Lisbon and Tokyo to buy assets.
Fosun’s focus on buying brands that appeal to China’s increasingly wealthy middle class has also been the driver behind acquisitions like Cirque du Soleil or Thomas Cook Group PLC this year, Mr. Liang said. Fosun, which bought a small stake in Club Med in 2010, acquired the French resort operator early this year after a nearly two-year battle, as the Shanghai firm sees it benefiting from the surge in Chinese outbound travel.
But in its transformation since its founding in 1992 by four university students from a company that focuses on pharmaceutical manufacturing and selling, one acquisition has been a big game changer: insurance companies. Fosun has spent over $9 billion on buying overseas assets in the past year and a half, including Portugal’s largest insurer and more recently U.S. insurer Meadowbrook Insurance Group and Israeli insurer Phoenix Holdings.
Insurance now accounts for over 40% of its net profit in the first half, compared with 9% in 2013. Its total net debt levels, meanwhile, fell to 63% in June from 86% two years ago because it is using insurance to pay.
“Low interest-rate markets such as Europe, the U.S. and Japan can facilitate Fosun’s acquisitions into insurance markets,” Mr. Liang said.
Mr. Liang also said that Fosun had investible insurance assets—assets for new investment—hitting a record high of $22 billion in the first half from $17 billion last year. While Fosun uses the income it gets from the insurer to buy assets, “to avoid foreign-exchange discrepancies”, Mr. Liang said targets remain in the same country.
Mr. Liang said another acquisition in the works is that of Novo Banco, the banking assets of Banco Espírito Santo, the Portuguese bank that collapsed amid allegations of fraud last summer.
“We are awaiting the Bank of Portugal’s final decision (on who wins the bid),” Mr. Liang said, adding that Fosun was strongly committed to Portugal.
Portugal’s central bank said earlier this month it had started talks with another prospective buyer for Novo Banco, having failed to reach an agreement with the other Chinese private company that has been making a splash through huge overseas acquisitions in recent years. China’s Anbang Insurance Group, which bought New York’s famed Waldorf Astoria hotel in a $1.95 billion deal last year, was also vying to buy Banco Novo.