Liberal approval of billion dollar sale of B.C. retirement-home chain 'doesn't pass the smell test'

Late last night Canadians got word that, “The Trudeau government has green-lighted the sale of one of British Columbia’s biggest retirement home chains to a Beijing-based insurance titan with a murky ownership structure in a deal that gives China a foothold in Canada’s health-care sector.” Retirement Concepts owns and operates 24 retirement long term care facilities, largely in British Columbia and Alberta. 

The Council of Canadians and its chapters have been vocally against this sell-off (see here and here).  We had also sent a letter late last year to the Minister of Innovation expressing both our concern with the sale and the process surrounding the review.

The Globe previously reported this, “massive Chinese insurance company with a murky ownership structure is buying a majority stake in one of British Columbia’s biggest retirement home chains, a deal believed to exceed $1-billion.” Currently, Retirement Concepts is the highest-billing provider of assisted living and residential care services in the B.C. and the government paid the company $86.5-million in the 2015-16 fiscal year. The company currently controls more than 10 per cent of residential care beds contracted by B.C.'s health authorities — more than any other non-profit or for-profit provider. The article also highlights that,

“Anbang appears to have gone to some lengths to conduct this B.C. deal below the radar. The name of the firm acquiring Retirement Concepts is Cedar Tree Investment Canada, which was incorporated as a federal Canadian company only in July. Cedar Tree’s registration initially gave the names of its two directors as Hong Zhao and Ye Zhang with their contact address as Suite 2560 at 200 Granville St. in downtown Vancouver. People with the same names and address are also the two listed directors for Maple Red Financial Management Canada Inc., the company that Anbang used to buy a controlling interest in all four towers of Vancouver’s Bentall Centre last year.”

As this attempted purchase exceed $600 million dollars, it needed to be reviewed by the federal government’s Investment Review Division followed by Innovation Minister Navdeep Bains making a final decision. Among many things, the purpose of the review is to determine if major purchases provide net benefits to Canada and the impact on Canadian participation in the business area. The Council of Canadian sent a letter to the minister requesting an extension of the review period, public input, increased transparency and clarification on the potential impacts of this takeover.

It is reported that Canadian officials said, “on Tuesday their review of the takeover included a screening for any potential impact on national security. ‘No issues were raised,’ a spokeswoman for Innovation, Science and Economic Minister Navdeep Bains said. Federal officials did not explain how they have been able to get a clear picture of Anbang's ownership and corporate structure.”

 

This Is A Dangerous Deal For Seniors Care

Large corporate chains and private equity-owned firms are expanding in long-term care across Canada, a dangerous trend a recent report calls “caretelization.” In Canada, 37 per cent of long-term care beds are owned and operated for profit. This Council of Canadians has repeatedly proposed including long term care and related services under the Canada Health Act; including bringing them universally into the public system with mandated minimum direct care staffing levels consistent with the evidence. In lieu of a federal government taking the leadership on this, we believe the least they should have done is protect the interests of Canadians and the further erosion of our health care system by rejecting this deal. Health groups from Alberta and British Columbia also called on the government to reject this takeover.

So what is at stake? In Alberta, Friends of Medicare executive director Sandra Azocar has importantly highlighted to the CBC that, “the potential sale to an overseas company speaks to the larger issue of funding private versus public health care. ’This move is only going to make the situation worse in terms of opening up the door to the type of for-profit business that health care should never be.’” Hospital Employees’ Union (HEU) secretary-business manager Jennifer Whiteside stated, “Selling B.C. seniors' care facilities to an offshore insurance company is not in the interests of B.C. health care workers, seniors, or our health care system. Allowing this sale to proceed would represent a major loss of accountability and control over the provision of seniors' care. And it would send a clear signal to global investors that seniors' care and other health services in this province are for sale to the highest bidder. Unfettered foreign investment in our health care system is the wrong direction for British Columbians." In another interview Whiteside astutely noted, “Our primary concern around this [sale] is what in essence is a loss of control over a public asset that has been subsidized by taxpayers, by British Columbians…Retirement Concepts is a private company but has built its business through contracts with publicly funded health authorities…What happens if [Anbang should] run into liquidity problems ... how will the provincial government ensure this public asset is protected?"

Canadians should be concerned. Seniors care is becoming a private equity money maker and allowing, “the growth of a private equity service delivery model in Canada will undermine the federal government’s stated priority of building a high-quality sustainable system of community-based care for seniors.” Anbang’s interests have little to do with health care. Instead, deals like this are a part of a trend for private investment companies to purchase land and properties to make profits by leasing the properties back to a second private for profit operator  (Retirement Conecpts in this case) to get a high return on capital and maximizing cash extraction.  As an excellent article in the Toronto Star noted,

“Some companies have gone bankrupt as a result, leaving residents and families in the lurch — and obscure relationships among multiple companies can make it very difficult to pin down responsibility when things go wrong. In the U.K., such a lease arrangement became so costly that when the government refused a request from the operator to help pay for these increasing costs, the Southern Cross chain of 750 publicly funded for-profit-owned homes declared bankruptcy. This left residents and families with great uncertainty and governments facing public scandal.”

We also know that large private equity investments in nursing homes very often jeopardize the quality of care received and put seniors’ health at risk. For example, “the 10 largest publicly funded private for-profit nursing home chains in the U.S. have been found to have lower nurse staffing hours, for example, compared to government facilities. Publicly funded private for-profit chain facilities in Ontario have also been found to provide fewer hours of care.”

There are also additional concerns that as with opaque companies like Anbang it is difficult to identify who is responsible for care at the end of the day; the lines of accountability if seniors and patients have concerns or complaints becomes at best murky. Further, the complex foreign corporate structure of Anbang makes it extremely difficult, if not impossible, to enforce financial accountability and reporting on how public resources are spent, or enforce regulations. There is also a very real concern that with Anbangs transnational ownership, any government regulations requiring facilities to spend a defined amount of public funds on staffing (or limit the amount spend on administration) could be contested under international trade agreements. It is worth noting the timing of this deal as four days of exploratory free trade talks between Canada and China began this Monday February 20 in Beijing. Council of Canadians chairperson Maude Barlow says, "There are huge trade implications here."

(The fourth floor of a building in Beijing houses two companies that control assets of Anbang Insurance Group worth more than $15 billion)

 

Taking A Deeper Look Into Anbang - Someone Has Got To Do It

With the above information in mind, it is worth looking at who this company is and why they are investing in Canada. As a preface, it is worth noting that with xenophobia and racism on the rise in Canada and abroad, exploring the background of this Chinese company should be based on its merits alone.  The New York Times has run a number of detailed articles where they attempted profile the opaque Anbang Insurance Group. There investigation found a,

“Group of 39 companies control Anbang, which was once a sleepy insurance company and now has $295 billion in assets and a reputation as an ambitious global deal maker. Many of those companies are in turn owned by a welter of shell companies, many with similar names and addresses or common owners... Ultimately, as they are controlled by about 100 people, many of whom hail from a county called Pingyang on China’s east coast... At least 35 of the companies, collectively owning more than 92 percent of Anbang, can trace all or part of their ownership to relatives ... of the former Chinese leader Deng Xiaoping; or to Chen Xiaolu, the son of one of China’s most famous marshals.”

They were founded 12 years ago as a provincial car and property underwriter and have come out of nowhere to go on a global spending spree throwing tens of billions of dollars around the world, yet little is really known about Anbang, the people and holding the holdings companies behind it. The Economist notes that, “Anbang has been unusually good at navigating China’s bureaucracy. In 2011, when it decided to establish an asset-management company, rules that would have blocked it from doing so were relaxed, clearing the way.” While it is clear there are deep political connections with Chinese state officials, another Times article questions who these shareholders are, or whether they are holding their stakes on behalf of others, a process called baishoutao, or white gloves, in China.

The person who seems to be behind Anbang is Wu Xiaohui, who married into the family of Deng Xiaoping (China’s leader in the 1980s and ’90s). Wu’s wife is the granddaughter of Deng Xiaoping, “making her a ‘princeling,’ or offspring of a politically connected founding family of China’s Communist Party.   Earlier this year when the Panama Papers leaked, many China’s top political families were exposed, and government censors attempted to block the news.

The Wall Street Journal reports that, “Insurance-industry analysts in China have warned that Anbang’s aggressive acquisitions could be straining its books. Standard & Poor’s said in November 2015 that it suspended its ratings on Vivat, the Dutch insurer Anbang bought last year, because it was ‘unable to secure sufficient information to accurately assess’ Anbang’s creditworthiness...Several Wall Street banks haven’t gotten internal clearance to pursue work with Anbang in the past, partly because it is unclear who effectively owns the company...”  Ultimately, it is important for the Canadian government to know who we are doing business with - as it stands they don’t. This alone should be enough to stop Anbang’s purchase.

 

Where Anbang Invests

Anbang’s interests outside of China have largely been focussed on purchasing property and land around the world in a billion dollar spending spree.  This includes earlier this year when Anbang came close to, “executing what would have been the biggest takeover ever of an American company by a Chinese company, offering more than $14 billion for Starwood Hotels & Resorts... The company is said to have its sights on trophy assets in 30 countries.” In February 2015, Anbang purchased the world-famous Waldorf Astoria in New York for $1.95 billion ‒ the highest price ever for a U.S. hotel.

In Canada, Anbang was involved in a C$974 million takeover agreement to buy a portfolio of Canadian hotels owned by Toronto-based InnVest Real Estate Investment Trust; the CBC notes InnVest owns 109 hotels across Canada, including stakes in some iconic names, such as Toronto's Fairmont Royal York Hotel. While this deal fell through, a shell company was created (Bluesky Hotels and Resorts Inc.) stepped up with the same executive Anbang was using and a month later bought the REIT for C$2.1 billion (despite having no corporate track record). In August of this year the deal was closed. Bloomberg and the WSJ have speculated on the ties between the shell company and Anbang.  It is also worth highlighting the parallels with Anbang creating the shell company Cedar Tree Investment Canada to purchase Retirement Concepts.

Anbang has also been involved in the purchase of a tower in downtown Toronto for at least C$530 million and a land lease (i.e. ownership for a set period of time) of building in downtown Toronto for C$110 million. The Financial Post reported that in Vancouver Anbang has, “bought what amounts to a 66 per cent stake in Bentall Towers I, II, III and IV — a sprawling commercial 1.5-million-square-foot office complex, with some retail, in the heart of Vancouver.” Structured through a front company called, Maple Red Financial Management Canada, Anbang bought a majority stake in Vancouver’s largest office complex at a cost of $660 million.

The Globe has highlighted that, “Retirement Concepts owns and operates about 24 retirement ‘communities,’ mostly in B.C., except for several properties in Calgary and Montreal. What makes it even more attractive is that it also owns holdings of unused or partly developed land that would allow a major expansion of facilities in the future.” Further, the senior leadership team at Retirement Concepts is also involved with running a substantial real estate investment company; it is safe to say Retirement Concepts acquired land wisely as it expanded and this land highly valuable.

What should be clear is that Anbang does not have a history in Long Term Care or its operations, but rather is interested in investing in properties/land. The government approved both Bluesky’s and Maple Red’s purchases (see here and here) under the investment Canada act.  But, unlike these previous land grabs, the purchase of a major component of our health sector is something new.

 

Why Is Anbang Investing In Canadian Seniors Care?

So why is Anbang investing over $1 billion into Canadian seniors care facilities? This question of political economy is essential to understanding why they are making such a large investment and the risks involved (hint: it has nothing to do with seniors healthcare).

There has been a tidal wave of money fleeing China over the last number of years (in 2015, is estimated at  $1 trillion). As Ipolitics notes, “Besides rampant corruption, pollution and political instability, the well-to-do of China now have a new reason to hide their wealth outside their borders. Their famously frothy economic growth is grinding to a halt. Incredibly, where capital flight is considered, China is currently running a trade deficit. Those with the means to do so desperately want to stash their cash in comfortable compliant jurisdictions that don’t ask too many questions. Welcome to Super Natural British Columbia.” A Bank of Canada research report in April predicted that these investment and capital flows are likely to grow much larger.

Both through companies and individuals, there has been a large outflow of capital from China over the last few years as fear surrounding the viability of the Chinese economy have heightened.  While the Chinese government publish details about capital flight from the country, in July Goldman estimated that in regards to individuals alone, “there were US$372 billion in outflows by Chinese residents spent on foreign assets in the second half of last year, and another US$108 billion left the country in the first quarter. In 2016, “China’s financial account balance logged a deficit of $490.3 billion, as the outflow of money greatly exceeded the inflow. As much as $163.3 billion of this capital ended up at unknown destinations. The yuan depreciated 6.6 percent against the dollar in 2016, the largest annual rate of fall since 1994.”  Further, the Institute of International Finance estimated, “capital outflows surged to a record $725 billion last year and it expects even higher outflows this year. The yuan fell more than 6.6% last year against the dollar, its steepest decline since 1994, prompting the central bank to spend hundreds of billions of dollars in reserves to prevent the slide from turning into a slump.” To prop of the yuan , the Chinese government is burning through, “what was almost US$4 trillion in foreign exchange reserves ... This cushion is now down to $3.2 trillion and has shrunk 14 per cent since this time last year.” But what is a trillion dollars here or there....  To make matters worse debt loads in China have reached 250 per cent of GDP, creating a precarious exposure for state-owned banks that some analysts have called potentially fatal to the Chinese economy.

One of the ways corporations have been getting money out of China has been via insurance schemes. Bloomberg reports that in China, “A combination of yuan weakness and a peak in the mainland property sector is conspiring to increase capital outflows."  Chinese insurers are expected to increase, “outbound investment by about $100 billion over the next three years, as they seek to diversify risks through buying more overseas securities, private equity and real estate.”  Abroad, Anbang have “engaged in $19 billion of purchases in three years, Thomson Reuters data shows, driving asset prices up along the way.”

In this context, it becomes apparent that the Anbang deal for Retirement Concepts is about capital flight disguised as an investment in seniors care. Anbang is following a recent trend that has emerged in the US/UK with Chinese private equity firm buying up seniors care facilities and health care assets in an attempt to move large sums of capital abroad and out of the Chinese market. “Cindat Capital Management, the private equity affiliate of one of China’s big four ‘bad banks’, kicked things off at the start of November acquiring a portfolio of senior housing and long-term/post-acute care facilities from Welltower for $930 million. The firm teamed up with Chinese institution Union Life Insurance to purchase 11 senior housing properties and 28 long-term/post-acute care facilities. Anbang’s rival Taikang Life Insurance joined the fray next, entering into an agreement with US-based NorthStar Realty Finance to buy a 19 percent stake in its health care portfolio for $1 billion.”

Traditionally, insurers manage their business by, “attempting to match projected payouts of liabilities—such as annuities and insurance payouts—with assets whose cash inflows are stable and predictable enough to fund the outflows.” Chinese insurers had/have been fuelling the industry’s aggressive acquisition spree through an explosive growth in premiums, but are saddled with promises to pay high yields.  It is reported that,

“Chinese life insurance premiums rose 39 per cent through the first 11 months of 2016 following 25 per cent growth in 2015. The biggest driver has been the sale of ‘universal insurance’ policies that are effectively wealth management products rather than protection-style insurance. Proceeds from insurance WMPs have, in turn, financed foreign acquisitions by Anbang Insurance and corporate raiding by Baoneng.  Regulators and analysts have warned that this strategy carries risks, since many insurance WMPs carry short maturities of one or two years, while proceeds are invested long-term in illiquid assets such as foreign real estate or large stakes in listed companies.” 

These companies are buying riskier and unstable assets to grow their capital to meet the high promise of returns, and insurers like Anbang, “which owns several entire foreign companies, has trapped cash and will find it even more difficult to raise money quickly. This means that to stay liquid, insurers are forced to sell more universal life policies in the short term—with new proceeds used to pay interest on existing policies.” This creates a very real danger where a single default of a large acquisition could send Anbang’s house of cards falling and the company would have limited liquidity to deal with the crisis. By approving Anbang’s purchase, the government seems to have no concern that there will be no one accountable to pick up the pieces when Anbang’s scheme ultimately collapses.

(Trudeau and Miaofei Pan at Vancouver fundraiser)

 

What This Deal Has To With Trade Deal and Cash-For-Access Scandals

What will this purchase mean in relation to trade deals? The provinces and territories have the right to refuse health care contracts to foreign companies under Canada’s current trade agreements, but the B.C. government has stated they will not block the say. It is worth noting that, “the B.C. government now makes more money from property transfer taxes than from casinos, tobacco, booze, the carbon tax or all resource royalties combined.” So, the ultimately decision rested with the federal government’s Investment Review Division and Innovation Minister Navdeep Bains.

 In the past decade, “the Conservative federal government blocked four such deals in the aerospace, telecom, potash and oil sectors, often citing the need to protect Canada’s national interests. If Ottawa approves the sale, it will then be reviewed by B.C.’s Chief Medical Health Officer, to ensure that the purchasing company is able to meet the needs of patients.” What is worrying is the federal government under Prime Minister Jusstin Trudeau is, “particularly eager to attract more investment from China and has begun exploratory free-trade talks with Beijing.”

In the first major cabinet shuffle of this liberal government there was a major pivot to China. John McCallum, the former immigration minister, was tapped to become ambassador to China. Vice reports, “He’ll likely be tasked with getting a trade deal inked with Beijing,” now that the TPP has collapsed. McCallum recently stated, “Canada’s role in the world is ‘to spread open markets, freer trade, (and) multilateralism. I am doing that in China,’ he added. ‘There’s a lot of scope for measures to increase our ties and to increase jobs for Canadians.’ One of those measures, McCallum said, is a potential free trade deal with China, which is the world’s second largest economy.”  As noted earlier in this article, four days of exploratory free trade talks between Canada and China began this Monday February 20 in Beijing.

Now here is where things get really sleazy. Most Canadians are aware of the Liberal’s cash for access scandal. Prime Minister Justin Trudeau has come under fire for attending $1,500-a-head fundraising events, often held in the homes of wealthy Canadians. Ethics Commissioner Mary Dawson has raised concerns about events Trudeau attended involving business leaders with ties to China. Yes, events, not just one but multiple. It is also worth remembering Christy Clark and the BC Liberals have their own cash for access scandals (see here and here).

On May 19th, Trudeau took part in two ‘events’ asking for $1,525 a head donation from people who wanted to spend time with the prime minister. One of the events was a dinner party that took place at the home of Toronto businessman Benson Wong, chair of the Chinese Business Chamber of Canada. Another guest was, Chinese billionaire Zhang Bin. The Globe reported that Prime Minister Trudeau spoke to the House of Commons in response to his cash-for-access scandals saying, “Canadians faced a period of 10 years of lower-than-needed growth under the previous government. That is why we have committed, engaging positively with the world to draw in investment... We know that drawing in global investment is a great way to grow the economy and create jobs.” Yet, the only known investment that followed the May 19 fundraiser was a $1-million donation to the Pierre Elliott Trudeau Foundation and the University of Montreal’s law faculty from Chinese philanthropists Zhang Bin and Niu Gensheng to ‘honour the memory and leadership’ of the Prime Minister’s father, Pierre Trudeau.

In fact, “the May 19 event appears to violate Mr. Trudeau’s Open and Accountable Government rules about lobbying and fundraising that state “there should be no preferential access or appearance of preferential access.” The fundraiser also appears to breach Liberal Party guidelines that require party officials to ban people who have direct business with the government from fundraisers.”

In December it was reported, “Vancouver businessman Miaofei Pan told The Globe and Mail that he had invited Trudeau to a fundraiser at his home in November in an attempt to lobby the prime minister to allow Chinese investment in the country (particularly in senior care), lower the bar for foreign real estate developers eager to participate in Canada, as well as relax immigration restrictions for Chinese financiers.” At the $1,500 fundraiser it was noted that, “more than 80 guests dined and had their photographs taken with Mr. Trudeau. The event is one of several Liberal Party fundraising events aimed at wealthy Chinese-Canadians. Attendance figures suggest the party collects $50,000 to $120,000 per event. This all raises serious questions regarding if the Liberal government was bought off for the Anbang purchase.  

 

Looking at all information regarding Anbang's purchase of purchase of Retirement Concepts, the story seems more of a fit for the next season of Netflix’s House of Cards than Canadian politics. Possible back room political deals, cash-for-access, currying favour during trade negotiations, a mysterious Chinese company with ties to ruling elites, billions of dollars in capital outflows and land grabs during a time of Chinese economic uncertainty, a huge portion of Canada’s seniors care being bought by private equity with no experience in the area and the formal approval Investment Review Division saying no issues are raised. If nothing else, it doesn’t pass the smell test.