Bangkok Post

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.”

 ??  ?? Tan: M&A pace will slow a little
Tan: M&A pace will slow a little

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