Hedge fund hands lifeline to HNA unit

HONG KONG: It’s been a tough couple years for Pactera Technology International Ltd.

The tech outsourcing arm of embattled Chinese conglomerate HNA Group Co has been ditched by Bank of America Corp and Goldman Sachs Group Inc, sued over a collapsed acquisition and cut deep into junk territory by Moody’s Investors Service.

Now it turns out that a rare piece of seemingly good news last month – an US$80mil loan secured by Pactera after more than a year of failed attempts to attract funding – may just be another sign of the fragile financial state of the company and its debt-laden parent.

The loan came from Davidson Kempner Capital Management, a US hedge fund whose specialties including distressed investing, people with knowledge of the matter said.

While terms of the deal weren’t disclosed, analysts suspect Pactera had to pay up to attract Davidson Kempner, which had US$31bil of assets under management in January.

“The fact that they’re borrowing money from a hedge fund, I think it’s a sign that they aren’t able to resolve their issues,” said Jin Rui Oh, a Singapore-based senior analyst at United First Partners.

“It’s an open secret that they are in a really bad position.”

Pactera’s difficulties, some of which haven’t been previously reported, illustrate how HNA is still struggling to cope with the debt burden amassed during a US$40bil takeover spree.

While the conglomerate has been shedding assets this year to reduce leverage, it no longer has access to cheap financing after some international banks distanced themselves from the group and China cracked down on the shadow lending system that helped fund HNA’s expansion.

Representatives for HNA and Davidson Kempner declined to comment.

HNA’s ownership of Pactera dates back to 2016, when it agreed to buy the company from Blackstone Group LP for about US$700mil. It didn’t take long for Pactera’s relationship with Wall Street to turn rocky.

In mid-2017, the company began working with Bank of America to seek funding for a planned acquisition, a person with knowledge of the matter said.

The plan fell apart when Bank of America told its investment bankers to stop working on HNA deals amid concerns about the conglomerate’s debt and ownership. Pactera ended up dropping the acquisition, another person said.

Pactera’s other attempts to raise financing didn’t fare much better.

It was working with Goldman Sachs on preparations for an initial public offering, but the bank later dropped off because the deal didn’t meet internal compliance requirements, Bloomberg News reported in September 2017.

The company then turned to CLSA Ltd, asking it to help sell as much as US$300mil of convertible preference shares, sources said. — Bloomberg