China life places $2bn bet on budget starwood lodgings in us – nikkei asian review credit risk market risk
The portfolio it invested in on Tuesday consists of 280 lodging spaces spanning 40 states and affiliated with “premier global hospitality brands,” according to a statement by Starwood Capital.
These hotels, said Barry Sternlicht, CEO of the Connecticut-based investment company, “offer [China Life] access to strong markets, strong cash-on-cash yields, scale and diversification.”
In February 2015, Sternlicht spearheaded the sale of the deluxe Baccarat Hotel in New York’s Manhattan to Beijing-based Sunshine Insurance Group for $230 million — more than $2 million for each room.
China Life’s move coincides with its profit warning that its bottom line for the third quarter is likely to plummet by 60% from a year earlier, meaning it is going to extend its losing streak. Risk of stock
market crash In the January-June period, the company’s net profits fell 67% year on year to 10.4 billion yuan ($1.56 billion).
The company attributed the decline mainly to a decrease in investment income as well as to the effect lower interest rates are having on its reserves, according to a filing to the Hong Kong stock exchange.
To counter the impact of multiple interest rate cuts by the People’s Bank of China since late 2014, China Life has been adding more risk assets to its portfolio. Market risk premium today Of the 2.4 trillion yuan of assets under management as of June, 76.7% consisted of fixed-maturity instruments; another 17.4% was made up of equities. Market risk example Two years ago, fixed-maturity instruments made up more than 90% and equities less than 8%.
The bust of the mainland’s stock markets two summers ago also dug into China Life’s coffers. Credit risk market risk The Shanghai Stock Exchange Composite index has been down over 40% since peaking in June 2015. What is market risk Since then, it has remained locked into ho-hum range-trading.
Zhao Lijun, China Life’s vice president, previously suggested the company needed to rebalance its investment portfolio to stabilize its income stream.
Excluding the Starwood deal, overseas assets made up only 2% of China Life’s portfolio. Emerging market risk Its investments include $1.22 billion in the 10 Upper Bank Street skyscraper in London’s Canary Wharf and $1.65 billion in a Manhattan office tower on Sixth Avenue. Market risk premium nyu It has also bought itself 200 warehouses in the U.S. Market risk premium 2012 via a $1 billion stake in Singapore-listed Global Logistic Properties.
At home, China Life continues to plow capital into the primary equity market. What is the current market risk premium Seeking to take control of midtier China Guangfa Bank, it has acquired stakes from Citi and IBM for 23.3 billion yuan. Market risk analyst The investments would ultimately take China Life’s interest in the bank to 43.7%. Beta market risk It also has participated in many major initial public offerings in Hong Kong as a cornerstone investor. Risk analysis in stock market The IPOs it has gotten aboard include those for the Postal Savings Bank of China, China Resources Pharmaceutical, Cofco Meat Holdings and China Merchants Securities.
“China Life’s profitability remains sensitive to investment performance,” credit rating agency Fitch said, adding that its “increased equity holdings are likely to contribute to fluctuations in earnings and capitalization.” The company’s pretax annualized return on assets dipped to 1.1% in the first half, versus 2% at the end of last year.
Although its equity-to-asset ratio was the highest among Chines insurers, at 11.8% by the end of the first-half, alternative investments, such as infrastructure and real-estate debt investment plans and trust schemes, remained modest, representing 5% to 6% of invested assets, according to Fitch.