HNA to tap M&A brakes after $50bn deal splurge
BEIJING: After two years of aggressive dealmaking — from buying stakes in Deutsche Bank AG and Hilton Worldwide Holdings Inc to taking over electronics distributor Ingram Micro — Chinese conglomerate HNA Group Co Ltd intends to slow the pace, or at least the size, of its acquisitions overseas.
A sprawling aviation-to-financial services group, HNA has emerged as China’s most active non-government player in global markets, with deals worth more than $50 billion — equal to the annual GDP of Bulgaria.
“This year, the merger and acquisition pace will slow a little for sure,” Adam Tan, HNA Group CEO, told Reuters in a rare media interview.
Political uncertainty in the United States and Europe — such as the upcoming negotiations on Britain’s departure from the European Union — and China’s broad crackdown on capital flight from the country, have changed the climate for HNA’s unbridled growth.
“It’s a bit more complicated than before,” Tan said by phone. “Tensions between China and the United States are the biggest risk.’’
His comments come amid increasing debate about the United States expanding its vetting process on foreign investment, and tensions over its trade deficit.
“This is a critical relationship,” Tan said. “No good can come from fighting. We can disagree, we can talk, we can negotiate — that’s a family issue. We’re not enemies.”
For HNA, which has accumulated assets even as other Chinese companies find it more difficult to acquire overseas, any pivot in strategy may bring the group more into line with government policy aimed at reducing the amount of money leaving China.
It would also give it more opportunity to digest and rationalise the assets it has bought using often complex bank borrowing and debt arrangements.
Tan spoke to Reuters at a time when HNA’s financing and ownership structure has come under intense scrutiny.
In three years, the group has more than quadrupled its assets, to 1.2 trillion yuan ($176.12 billion) at the end of last year from 266 billion yuan at the end of 2013.
“The scope of their ambition, the speed of these acquisitions, the enormity of the credit resources at their disposal has put HNA in a different league, where the normal rules of business don’t seem to apply,” said William Kirby, a professor at Harvard Business School.
Fuelling HNA’s expansion has been the ambition of its founding chairman Chen Feng, at the cost of rising debt.
The group had around $89 billion in credit lines from domestic banks at the end of May. Separately, the group and its subsidiaries have issued more than $10 billion in outstanding onshore and offshore debt.
HNA says it currently has debts totalling 710 billion yuan.
Launched in 1993 as a fledgling airline in partnership with the Hainan provincial government, HNA today comprises a tangled cross-shareholding web of more than 400 companies, including over a dozen listed on the stock market.
The group remains heavily tied to aviation, holding a key stake in Hainan Airlines, China’s fourth-biggest carrier, and helps operate another 18 airlines, including US business aviation firm Deer Jet and Parisbased Aigle Azur.
It also owns a substantial airports and airport servicing business, and Avolon, another subsidiary, is one of the world’s leading aircraft leasing companies, with a fleet of 850 planes.
“HNA won’t, though, stop making offshore acquisitions entirely. International assets are better priced, compared to Chinese domestic assets, and low-cost capital is still available,’’ Tan said.
He refuted any notion that HNA’s dealmaking flurry exposed an absence of strategic focus. “HNA is scouting for undervalued assets.”