First Starwood, now IHG?
Two weeks after Marriott announced its purchase of Starwood, there is speculation that IHG may be up for grabs. This according to a Telegraph story, which indicates that Chinese bidders are looking to possibly buy the group.
The story suggests that IHG has been "left vulnerable" following the Starwood purchase. The company, whose brands include Crowne Plaza and Holiday Inn, has more than 4,900 hotels with almost 730,000 rooms. Three Chinese businesses—Shanghai Jin Jiang International Hotels Group, HNA Group and the sovereign wealth fund China Investment Corp—two of whom had previously expressed an interest in buying Starwood, may now look to IHG. However, the paper notes, no approaches have been made to the British company yet.
IHG's global reach and operations would be a boon for a Chinese company looking to diversify its holdings outside of Mainland China. IHG is reportedly valued at about £5.8 billion.
It is still too soon to tell whether or not a deal ends up going through, but there is an undercurrent of big consolidation within the industry, beyond smaller, regional buys, such as Marriott's previous deals for Africa's Protea Hotels and Canada's Delta Hotels & Resorts.
But China's financial strength is not what it was just a year ago, and an outpouring of capital may be premature. Reuters is reporting that the yuan has fallen almost 3 percent against the dollar this year, on course for its biggest annual fall since its landmark 2005 revaluation. And after China's stock market dropped by more than 40 percent in the summer, regulators are making it harder for money to leave China, and have intervened heavily in onshore and offshore currency markets.
A pause may be necessary after a year that set high marks for outpourings of funds. The New York Times, citing Fitch Ratings, estimates that $590 billion moved out of China in the 12 months through June, and the amount of outflows most likely set a record in the third quarter, although detailed data will not be available until December. In the past, outflows tended to stay under $200 billion a year.
But whereas Reuters notes restrictive regulations that are blocking foreign investment, the Times claims that over the last six years, the Chinese government has kept the country "awash with cash" and made it easier for individuals to move large sums out of the country. The government is also loosening the rules for corporations: Beijing now allows insurance companies to invest as much as 15 percent of their assets overseas, helping drive a surge in commercial purchases.
Chinese companies have been buying stakes in American trophy properties, like the Waldorf Astoria in New York. “The Chinese are deliberate; there will clearly be large capital flows coming to the West,” Stephen Schwarzman, CEO of the Blackstone Group, told the Times. “That will increase in frequency until the Chinese government decides it shouldn’t happen anymore—they’ve opened the spigot.”
Data from the U.S. Commerce Department's Bureau of Economic Analysis show investment by Chinese entities reached $9.5 billion last year, up from $3.3 billion in 2010 and just $385 million in 2002. A report from New York-based Rhodium Group said the first half of this year saw a record $6.4 billion in investment, with more than half of the funding going toward the real estate and hospitality sectors, like Sunshine Insurance's record buy of New York City's Baccarat Hotel.
Last month, the Wall Street Journal analyzed the likelihood of these same companies acquiring Starwood, and noted: "Chinese bidders, knowing well that the hotel industry in their home country suffers from oversupply, may not want more China exposure. In the second quarter, Starwood’s revenue per available room at same-store hotels in China was down 0.3 percent from a year earlier in constant-dollar terms; at its North American properties, that metric was up 5.3 percent."
Moreover, even as China's economy is slowing, new hotel supply is up. At the start of the year, the number of hotel rooms under construction or planned stood at 292,000—equal to 15 percent of current supply—according to STR Global.