Mirae Asset's "7 Trillion Deal" Exit Strategy... Withdrawing Contract May Be Better Than Bearing Hotel Risk

Legal Battle with China's Anbang Insurance over '7 Trillion Deal'... Notification of Possible Termination if Contract Breach Remains Unresolved
Hotel Value Declines Due to COVID-19 Impact... Recovering 700 Billion Deposit Could Be Beneficial

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As Mirae Asset Financial Group has entered into a legal dispute with the seller, China's Anbang Insurance, over the acquisition of a $7 trillion-scale luxury hotel in the United States, analysis suggests that it is effectively pursuing an 'exit strategy.' Mirae Asset claims that since Anbang Insurance breached the contract, it may terminate the agreement. Attention is focused on whether the group can recover the already paid contract deposit of 700 billion won amid the bleak outlook for the hotel industry due to the impact of the novel coronavirus disease (COVID-19).

According to industry sources on the 29th, Mirae Asset Asset Management initiated legal action against Anbang Insurance the day before. Mirae Asset stated, "During the due diligence process after being selected as the preferred bidder, we confirmed that there is a specific lawsuit related to this transaction between Anbang Insurance and a third party," adding, "We continuously requested explanatory materials from Anbang Insurance, but they did not provide them, and Anbang Insurance failed to meet the preconditions for closing the deal, resulting in a contract breach." They have notified that if the breach is not resolved by the 2nd of next month, contract termination is possible.

In the investment banking (IB) industry, it is viewed that Mirae Asset has embarked on an exit strategy. Since hotel values have already declined sharply due to the plunge in travel demand, there is a perspective that if Mirae Asset acquires the property at the originally agreed price of about 7 trillion won, it would be paying an excessively high price. This is similar to the book value at which Anbang Insurance initially purchased the asset. On the other hand, according to market research firm STR (Smith Travel Research), as of the 18th, the one-week U.S. luxury hotel room occupancy rate was 9.9%, a sharp drop from 73% during the same period last year. If the acquisition proceeds under the existing terms, Mirae Asset's initial goal of reselling the hotel will remain uncertain for the time being. Therefore, through this lawsuit, it is analyzed that withdrawing from the contract and emphasizing the special circumstances of the COVID-19 pandemic to recover at least part of the already paid 700 billion won deposit would be advantageous.

The increasing risk of other investment assets also lends weight to the speculation that Mirae Asset is seeking an exit strategy. Last year, Mirae Asset invested in the West Hollywood Hotel in Los Angeles, the Las Vegas integrated resort in 2018, and the Four Seasons Hotel in Hawaii. These hotels have also seen a sharp decline in asset value, raising concerns about defaults. The Majunga Tower in France, considered Mirae Asset's representative investment asset in Europe, has yet to complete resale. Since Mirae Asset also participated as a financial investor (FI) in HDC Hyundai Development Company's bid to acquire Asiana Airlines, it is in a situation where it must conserve its investment capacity as much as possible.

Reflecting these factors, Standard & Poor's (S&P) downgraded Mirae Asset's credit rating outlook from 'stable' to 'negative' earlier this month (long-term BBB, short-term A2). This was based on concerns over increased financial market volatility, expansion plans for equity investments, deterioration in the soundness of investment assets, and corporate loans. Moody's is also reported to have started reviewing a downgrade of Mirae Asset's credit rating. An industry insider said, "This situation could actually be an opportunity for Mirae Asset to withdraw from a crisis," adding, "Through legal disputes, they could cancel the deal and recover part of the deposit, or even if the contract proceeds, they might be able to negotiate a price reduction."

This content was produced with the assistance of AI translation services.