China’s wounded rhinos

The New York Times reports that cash-strapped Chinese aviation and shipping conglomerate HNA Group is appealing to its own employees for financial assistance to cope with an estimated US$90 billion (FJ$180b) in debt accumulated in its high-profile global spending spree.

In January, according to the Times, HNA Group companies bombarded employees with a variety of e-mail pitches promising high rates of interest in exchange for short-term loans.

The Times says it reviewed “dozens” of different offerings.

One touted 8.5 per cent for workers lending US$1,500 (FJ$3000). Another proffered a return of up to 40 per cent to employees willing to lend US$15,000 (FJ$30,000). An HNA lawyer said the offers were part of an incentive program for employees and not intended to provide financing for the conglomerate.

Employess Appeals

But none of the appeals appear to have offered employees equity in HNA companies.

Anne Stevenson-Yang, co-founder of J Capital Research, called the employee appeals a “desperation measure when companies really have no other source of financing and they are stuck.”

Until recently, HNA, headquartered on China’s southern Hainan Island, was among the Middle Kingdom’s brashest overseas investors.

Its global acquisitions included Minnesota-based Carlson Hotels, owner of the Radisson and Park Plaza Hotels; a 25 per cent stake in Hilton Worldwide Holdings; a 9.9 per cent stake in Deutsche Bank; the aircraft leasing arm of the New York financial firm CIT Group; and Ingram Micro, the Irvine-based company that is the world’s largest distributor of technology products. In January 2017, HNA Capital, one of the group’s subsidiaries, pledged US$200 million (FJ$400m) for a majority stake in SkyBridge Capital, the New York hedge fund of Anthony Scaramucci, facilitating Scaramucci’s colorful, albeit brief, stint as an official in the Trump White House.

HNA’s buying binge came to an abrupt halt last summer after the Chinese government identified overseas investments by HNA and several other Chinese companies as posing a systemic risk to China’s economy.

An unsigned commentary in the Peoples’ Daily, borrowing from metaphors popularized by Nassim Nicholas Taleb and American policy analyst Michele Wucker, argued that China’s acquisitive conglomerates weren’t “black swans” (high-impact risks that are highly improbable and therefore almost impossible to predict) but “gray rhinos”—high-impact risks that were highly probable but widely ignored.

China’s giant state-owned banks, the major source of the conglomerates’ funding, began reigning in lines of credit.