[Exclusive] Mirae Asset's $7 Trillion US Hotel Acquisition Stalled by COVID-19

Financial Market Freezes, Investor Recruitment Difficulties
Postponed Within First Half... Concerns Over Deal Failure

[Asia Economy Reporters Jeongsoo Lim and Juyoun Oh] Mirae Asset Financial Group has tentatively postponed the acquisition of 15 hotels in the United States, worth a record 7 trillion KRW among domestic financial companies' alternative investments. Due to the freezing of the local financial market caused by COVID-19, the planned fundraising locally has not proceeded smoothly. Some concerns have even arisen that the acquisition might fail in the worst-case scenario due to funding issues.

According to the investment banking (IB) industry on the 25th, Mirae Asset postponed the acquisition of 15 U.S. hotels, which was agreed upon last September with China's Anbang Insurance for 6.9 trillion KRW, until the end of the first half of this year. Initially, the plan was to complete the transaction by paying the remaining balance by the end of this month, but difficulties in raising the necessary funds for the hotel acquisition made the deal closing delay inevitable.

Last September, Mirae Asset signed a contract to acquire 15 hotels and resorts in nine major U.S. cities including New York, Chicago, and San Francisco from China's Anbang Insurance for 6.9 trillion KRW. This is the largest scale of alternative investment ever pursued by a domestic financial company. The bold investment was based on Chairman Park Hyun-joo's decisiveness and optimistic outlook on the travel and tourism industry.

Mirae Asset's own investment amount was 2.6 trillion KRW, with Mirae Asset Daewoo (1.8 trillion KRW), Mirae Asset Life Insurance (500 billion KRW), Mirae Asset Asset Management (190 billion KRW), and Mirae Asset Capital (100 billion KRW) each contributing. Among these, a deposit of 700 billion KRW had already been paid in advance. The remainder was planned to be raised through secured loans via local IBs.

However, the situation rapidly changed due to COVID-19. As the U.S. financial market entered a liquidity crunch phase, it became difficult to attract investors. Concerns about future hotel price declines have also been raised. In January last year, the U.S. hotel room occupancy rate was 45.1%, the lowest for January since 1987, and the property values of U.S. hotels have sharply declined after peaking in 2007. It is reported that 15.7% of securitized hotel mortgages were delinquent as of the end of February.

An IB industry official said, "U.S. financial companies are focusing more on securing liquidity rather than executing investments in preparation for economic and financial market liquidity deterioration," adding, "It will not be easy to find investors willing to lend money for hotel investments, where collateral values are expected to fall." Another official observed, "Since 700 billion KRW of the deposit has already been paid, it will not be easy to withdraw from the deal."

Chairman Park's 7 trillion KRW bet is also shifting from 'praise' to 'concern.' Some pessimistic views suggest that the deal might collapse as the travel industry has been hit by COVID-19 and there is little room for improvement in the near future.

Mirae Asset stated, "There are concerns along with last year's acquisition of Asiana Airlines, but the deal is proceeding as planned, and the hotels will recover to values above their original worth over time." The company added, "With the U.S. government (FRB) lowering interest rates and supplying large-scale liquidity, institutional investors' liquidity situations are also improving. Although the deal may be slightly delayed, it is expected to be completed within the first half of the year."