US panel scuppers deal for unit of China’s HNA

Move adds uncertainty to future Chinese acquisitions

HONG KONG: HNA Group Co Ltd’s US$416mil investment in US in-flight services firm Global Eagle Entertainment Inc has collapsed in the latest deal scuppered by a US government panel, adding uncertainty to future Chinese acquisitions.

The pair had agreed an “outside date” to receive approval from the Committee on Foreign Investment in the United States (CFIUS), and that date has now passed, Global Eagle said in a stock exchange filing, without elaborating.

The announcement comes as CFIUS, which assesses inbound acquisitions for national security risks, has objected to a historically high number of deals this year, people familiar with the matter previously told Reuters.

The committee’s more conservative stance under US president Donald Trump coincides with growing political and economic tension between the United States and China.

At the same time, China’s government is increasingly scrutinising banking relationships and aggressive overseas deal-making of some large conglomerates, as it looks to stem the flow of capital leaving the country.

HNA unit Beijing Shareco Technologies Co Ltd agreed to buy up to 34.9% of Global Eagle in November, which would have made it the single largest shareholder of the provider of satellite-based connectivity and media to sectors including aviation, maritime and home entertainment.

In April, Global Eagle chief executive Jeffrey Leddy said CFIUS had found ”unresolved national security” concerns and that a new application would explore “mitigation alternatives”.

“We don’t think it’s necessarily related to our government business per se but relat- ed to the more general scope of what our company does and the fact there’ll be a significant foreign investor, in this case, particularly a Chinese investor that is raising their concerns,” he said, according to a transcript of a call with analysts posted on its website.

Neither Global Eagle nor CFIUS responded to emailed requests for comment sent outside US business hours. Beijing Shareco did not respond to Reuters’ queries. HNA declined to comment.

Chinese firms in recent years have been scouting for US targets as varied as hotels and film studios, to expand in the country and hedge against a weaker home currency.

They have announced 87 deals so far this year in the United States, a record high and up from 77 in the corresponding period of 2016.

But deal success is less certain with CFIUS’ conservative stance.

Deals that collapsed while under review include US electronics maker Inseego Corp’s sale of its MiFi mobile hotspot unit to Chinese smartphone maker TCL Industries.

Chinese deals awaiting approval include Ant Financial’s US$1.2bil purchase of MoneyGram International Inc and China Oceanwide Holdings Group Co Ltd’s US$2.7bil acquisition of Genworth Financial Inc.

HNA is also awaiting CFIUS approval for another deal.

The conglomerate, which this week announced a shareholding shake-up to make its ownership more transparent, in January agreed to buy hedge fund SkyBridge Capital LLC from the Trump administration’s new communications director, Anthony Scaramucci.

The investment agreement with Global Eagle also involved establishing a Chinese joint venture providing Chinese airlines with in-flight entertainment and connectivity (IFEC) services, in which the HNA unit was to hold a controlling stake.

Global Eagle said in its filing that with the main investment agreement cancelled, ”other related agreements” entered into with Beijing Shareco would also be terminated.

It said it continued to operate under existing agreements to provide IFEC equipment and services to HNA-affiliated carriers Hainan Airlines Holding Co Ltd, Beijing Capital Airlines Holding Co Ltd and Yangtze River Airlines Co Ltd.

“The company and HNA continue to discuss opportunities to expand their relationship in the Chinese market for IFEC equipment and services,” Global Eagle said.

There was no assurance such talks would result in any agreements, it said. — Reuters

We don’t think it’s necessarily related to our government business per se but related to the more general scope of what our company does and the fact there’ll be a significantg foreign investor. Jeffrey Leddy