Fosun to Focus Investments in Emerging Markets, Backing Off from U.S., Europe

By Bonnie Cao and Ye Xie | May 6, 2016

Guo Guangchang, the Chinese billionaire and self-styled disciple of Warren Buffett, is looking to invest in emerging markets for the first time as his conglomerate backs off from its buying spree in developed nations.

“There are fewer and fewer investment opportunities as the overall valuation becomes expensive, especially in Europe and the U.S.,” Guo, the 49-year-old chairman of Fosun Group, said in an interview Thursday. The company will “actively look” for investments to make in countries including Brazil, Russia, India and China, he said.

Moving to developing countries would mark a new phase for Fosun after it spent about $10 billion since 2013 buying insurers, banks and fashion companies in countries from the U.S. to Italy. Emerging-market stocks and currencies have tumbled over the past three years as commodities slumped and growth slowed.

“Our strategic deployment in Europe and the U.S. is relatively complete,” Guo said. “In emerging markets, it has just started. It fits our need as a global company.” Industries the company is considering include commodities, pharmaceuticals and tourism, he said.

Scrapped Deals

Fosun has slowed down its overseas expansion after announcing more than $4 billion of acquisitions in 2015 as it works to reduce debt and consolidate existing businesses. In February, the company abandoned a more than $460 million bid for Israeli insurer Phoenix Holdings Ltd., two months after walking away from a deal to buy Anglo-German banking group BHF Kleinwort Benson Group.

The retreat came before Beijing-based Anbang Insurance Group Co. abruptly withdrew its offer for Starwood Hotels & Resorts Inc., raising concern that the Chinese government may have pressured its companies to slow down following unprecedented overseas purchases earlier this year.

Guo, who went missing for three days late last year to assist in a government probe, said Chinese officials have never influenced his business decisions. The deals are scrapped because their valuations no longer made business sense, he said.

“We invest only when the strategic need, timing and valuation align,” said Guo. “If you think valuation is high, you give it up. That is very normal.”

Shares Slump

He declined to comment on his brief disappearance in December or what officials asked him about, saying business has returned to normal. Over the past 12 months, shares in Fosun International have fallen 50 percent, compared with a decline of 26 percent in the benchmark Hong Kong Hang Seng Index.

Guo co-founded Fosun with four friends and about $6,000 in capital in the 1990s. He later borrowed the investment approach used by Buffett’s Berkshire Hathaway Inc., buying insurance companies to secure long-term funding that can be deployed to expand across a range of businesses.

Over the last two decades, he built an empire sprawling across insurance, real estate, health care and entertainment and acquired global household names such as entertainment company Cirque du Soleil Inc., resort company Club Mediterranee SA and Italian suitmaker Raffaele Caruso SpA.

Junk Rating

Fosun has transformed itself in recent years from a steel and real-estate company to a conglomerate that focuses on consumer businesses, in line with the broad transition of the Chinese economy. By the end of last year, revenue from steel declined to 29 percent of the total from 77 percent in 2008, while its insurance business jumped to 19 percent from zero just three years ago. Overseas business accounted for 34 percent of its $12.5 billion revenue last year, up from just 2 percent in 2013, regulatory filings show.

Guo said the company will keep reducing debt levels in a bid to obtain an investment-grade credit rating. The company is rated BB at S&P Global Ratings, two steps below the investment grade.

While confident that the Chinese economy will grow at the pace of 5 percent to 6 percent over the next decade, Guo said he always has “a sense of crisis” as an entrepreneur.

“The hotter the market is, the stronger sense of crisis one should feel and always prepare ahead,” he said. “It’s like treading on thin ice and you should be cautious.”

–With assistance from Vinicy Chan

Topics Trends Europe China

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