China’s Biggest Deal Maker Spent Billions. Now the Bill Comes Due.

To cope, HNA is trying to reverse what had been one of the world’s biggest and most aggressive deal machines by unloading billions of dollars’ worth of properties. It also has pledged some of the assets it bought over the past two years to lenders as collateral to raise cash. HNA has even announced plans to sell some of the assets it acquired when it bought a 25 percent stake in Hilton Worldwide Hotels, according to a regulatory filing.

The Chinese government has tightened its grip on the economy as the country’s president, Xi Jinping, consolidates his power and paves the way toward running China longer than any ruler since Mao Zedong. That tightened grip includes increasing pressure on major Chinese companies that piled on heavy debt to make audacious deals abroad.

That pressure has intensified in recent weeks amid indications that China is trying to tackle its debt and financial problems. Just two weeks ago, the Chinese authorities seized Anbang Insurance Group, a once-quiet insurer that turned to sales of opaque investment products to fuel a global buying binge that included the Waldorf Astoria hotel in New York. Other companies, like Dalian Wanda Group, have already sold off billions of dollars’ worth of properties at home and abroad as the authorities worried about growing debt and risk.

China’s Biggest Deal Maker Spent Billions. Now the Bill Comes Due.
China’s Biggest Deal Maker Spent Billions. Now the Bill Comes Due.

As official attitudes turn against flashy but potentially frivolous foreign spending, the pressure is catching up to HNA.

About $1.8 billion of its pending deals still await regulatory approval. Among those is a $775 million deal to acquire a majority stake in the storage and logistics business owned by Glencore International with operations around the world. They also include the purchase of a company from Anthony Scaramucci, a former Trump administration aide.


Chen Feng, HNA’s founder. He has acknowledged that the company struck a lot of deals at a difficult time but says he is hopeful it will overcome its troubles.Credit Jason Lee/Reuters

HNA’s problems could hit investors both at home and abroad.

HNA has suspended trading in shares of seven of its listed units in China and Hong Kong pending what it says could be a major restructuring announcement. Owners of those stocks could face big losses when they begin trading again.

Lenders could be on the hook, too. HNA is using much of the shares it owns in those businesses as collateral for loans. The company has also used the offshore bond market to raise billions of dollars from investors in Hong Kong, Singapore, Ireland and elsewhere to help finance its global deal-making, according to its regulatory filings.

A lawyer for HNA, Thomas A. Clare, said that debt periodically coming due was business as usual and that the company had always met its obligations.

Its sales, he said, stemmed from routine business decisions, as well as changing Chinese government views on property. “We announced publicly several months ago that real estate investments are now discouraged by Chinese regulators,” he said, “and consequently HNA would consider opportunistically exiting from properties that have gained in value.”

HNA could weather the turbulence. It is moving quickly to sell assets, saying this week that it would sell a stake in a trust that owns Hilton hotel properties worth $1.4 billion. China also has a history of bailing out troubled firms to avoid big financial disruptions or job losses. Last month, one of China’s biggest state-controlled banks, Citic, pledged $3.2 billion in credit. Mr. Chen, the company’s 64-year-old co-chairman, has said the company is hopeful it can move past its problems.

Still, HNA’s bond prices have plummeted, and the cost of raising new capital has skyrocketed over concerns that the company could default on its debts.

Sales by HNA this year could total $16 billion, by some estimates — more than the nearly $14 billion in deals it struck last year.

Newsletter Sign Up

Continue reading the main story

Thank you for subscribing.

An error has occurred. Please try again later.

You are already subscribed to this email.

View all New York Times newsletters.

“We think the only way the firm can procure enough cash to stave off this liquidity crunch is through asset divestments, which have already begun,” said Chung Yuh Ang, a senior fixed-income analyst at iFast Corporation.

Mr. Chen has acknowledged that the company struck a lot of deals at a difficult time. But HNA has also blamed outside factors — including, one executive has said, an anti-China conspiracy in other countries.

In a speech on Feb. 3, the company’s co-chairman, Wang Jian, cited attacks on the company from “reactionary forces from both China and overseas countering China’s rise,” adding that these forces were “a major conspiracy against the Communist Party Central Committee with Xi Jinping at its core,” according to a transcript of the speech sent to employees and seen by The New York Times. Mr. Clare said Mr. Wang was not referring to HNA’s financial situation.

Many corporate management experts are not surprised by HNA’s difficulties. HNA has made 123 acquisitions since 2015, becoming a sprawling enterprise comprising planes, hotels, property developments, computer equipment and even shipping lines. It now has 400,000 employees, roughly five times the number it had in 2015, according to regulatory filings.

HNA Group’s Run of Deals

Deal Value ($m)
Number of Deals
2018 YTD

MARCH 2, 2018

By The New York Times | Source: DealLogic

Even among China’s big spenders, HNA stood out. Over the last six years, HNA has paid more in fees to banks for deal advice than Dalian Wanda, Anbang and Fosun combined, according to Dealogic data. HNA in particular has struck ties over the years with pillars of the global financial system, including big banks in China, on Wall Street and in Europe.

Those ties have paid off handsomely for Wall Street. HNA paid $140 million in fees over that six-year period to big banks to advise on deals, according to Dealogic. Those banks could score big fees for helping HNA sell what it bought.

“Banks were clearly keen on doing business with these companies when they were on acquisition sprees,” Paul Gillis, who teaches at the Guanghua School of Management at Peking University, in Beijing, said of HNA and other Chinese companies that bought globally. “There were lots of fees to be earned backing these transactions.”

HNA’s fate could affect businesses — and tens of thousands of workers — around the world thanks to its spending spree. HNA owns Ingram Micro, an American distributor of technology products that it bought two years ago for $6 billion; Swissport, a baggage handler, and Gategroup, an airline caterer, both of Switzerland; and hotels and other properties in the United States and elsewhere.

Some of those properties are now on the block. The company hired JPMorgan Chase in January to help find a buyer for its stake in NH Hotels, a Spanish chain. One week after Mr. Chen, HNA’s founder, received an award at the New York gala from Mr. Schwarzman, it sold a Sydney office building for $160 million to Blackstone, Mr. Schwarzman’s firm.

HNA is also a significant minority shareholder in a number of international companies. It owns 26 percent of Hilton Hotels, the American hospitality chain; a 19.8 percent stake in Virgin Australia, the airline; and a 20.9 percent stake in Dufry, the Swiss airport retailer. It also owns shares representing 3.5 percent voting rights in Deutsche Bank, the German lender.

HNA recently began selling Deutsche Bank shares and had pledged many of them for loans. It has also pledged some of its shares in Dufry and Hilton in exchange for loans. In response to questions, Deutsche Bank cited a statement from HNA that the Chinese company would not sell more of its stake of the bank and declined to comment further. Dufry, Hilton and Virgin Australia declined to comment.

Some of HNA’s selling is coming amid rising skepticism about the company from foreign governments over questions about its ownership. The company’s ownership structure has raised the eyebrows of regulators in New Zealand — where a $460 million deal was recently rejectedSwitzerland, Germany and the United States.

Searching for a cheaper source of funds, company executives have talked about listing shares of Swissport and Gategroup on the public market.

No matter what solutions HNA might find for its debt problems, its executives face a difficult challenge in making such a big, sprawling company work well, say experts.

“When companies go on acquisition sprees like this, they can suffer from what some call indigestion,” said Robert Salomon, an associate professor at the Stern School of Business at New York University.

“Deals are incredibly complex,” he added. “The real work is what happens after you buy something.”

David Barboza reported from New York, and Alexandra Stevenson from Hong Kong. Cao Li contributed research.

Follow David Barboza and Alexandra Stevenson on Twitter: @DavidBarboza2 and @jotted.

Continue reading the main story

Similar Posts