BREAKINGVIEWS-Waldorf sale flags faster China repatriation push

By Ka Sing Chan

HONG KONG, Feb 13 (Reuters Breakingviews) - Just as the purchase of the Waldorf Astoria in 2014 marked China's going-out into the world party, the iconic U.S. hotel's sale will mark another big shift: A strategic acceleration in the repatriation of state firms’ offshore assets.

State-owned Dajia Insurance has put the Waldorf on sale after a $2 billion facelift, the Wall Street Journal reported on Wednesday, citing people with knowledge of the plan. That sum exceeds the $1.95 billion Anbang Insurance paid before Beijing slammed the brakes on outbound M&A and nationalised the acquisitive insurer. The hotel's owner will almost certainly pocket a huge loss on any disposal but new official priorities are emerging. These include reducing China's reliance on the U.S. dollar and positioning for a stronger yuan.

China's non-financial state-owned enterprises built up more than 8 trillion yuan, or $1.2 trillion, of offshore holdings by 2023, per official data. Divesting assets, particularly those in the West that might be vulnerable to any future sanctions risk looks sensible as Sino-American tensions continue to bubble. Investments in Belt-and-Road countries appear on safer ground plus these have the added benefit of indirectly supporting Beijing's push to internationalise the yuan. Elsewhere, there are also growing signs of a broader pullback from financial assets overseas. China Investment Corp, the country's sovereign wealth fund, was looking to offload a $1 billion portfolio managed by U.S. fund houses including Blackstone BX.N and Carlyle Group CG.O, Reuters reported in April citing sources.

Taken together, these decisions are significant. State enterprises will have an inside read on the Chinese currency's policy path. The yuan has risen more than 5% against the U.S. dollar in the past 12 months. Analysts at Goldman Sachs and Bank of America expect it to strengthen toward about 6.7 per dollar this year, raising foreign exchange risk on dollar assets. It ups the incentives to sell non-core holdings and send cash home.

There are other motivations too: Regulators are relying on state-owned enterprises to top up public coffers through fatter dividend payouts. Repatriated proceeds can also fund share buybacks. This can support a slow bull market in equities as part of President Xi Jinping's mission to reflate asset prices to revive consumer confidence. The sale of the Waldorf Astoria and other overseas assets will underscore a difficult reality for Beijing abroad as much as it signals its new domestic policy goals.

CONTEXT NEWS

The Chinese owners of the Waldorf Astoria in New York City are preparing to put the luxury hotel up for sale, months after it reopened following a $2 billion facelift, the Wall Street Journal reported on February 11, citing people with knowledge of the plan.