A massive Chinese company is reversing its global spending spree

A mysterious Chinese company that borrowed billions to snap up high-profile businesses around the world is now scramb...

Posted: Feb 16, 2018 12:55 PM
Updated: Feb 16, 2018 12:55 PM

A mysterious Chinese company that borrowed billions to snap up high-profile businesses around the world is now scrambling to sell assets after biting off more than it could chew.

HNA Group, which started out as a regional airline in southern China more than 20 years ago, has been on shopping spree in recent years, buying big chunks of major U.S. and European companies.

Its sprawling empire grew to include the Radisson hotel chain, a big U.S. technology supplier, a large stake in Hilton hotels and about 10% of Germany's Deutsche Bank. It has even reached a deal to buy SkyBridge Capital, the New York investment firm founded by former White House communications chief Anthony Scaramucci.

"This is a company that was clearly encouraged in recent years to grow as fast as it could, as far as it could, for as long as it could," said William Kirby, a finance professor at Harvard Business School.

Related: Once China's richest man, Wang Jianlin is selling off his global empire

But it has run into trouble as it struggles with debts estimated at $100 billion or more. Its aggressive deal-making drew attention to its murky ownership structure, raising questions about how it has financed its heavy spending.

Investors have dumped the stocks and bonds of some businesses in HNA's vast web of subsidiaries. Credit ratings agencies have downgraded debt linked to the company.

The pressure has also come from Chinese authorities, which clamped down on heavy overseas spending by big companies last year. Experts say that makes China's big state-owned banks, which helped bankroll HNA's expansion, more reluctant to lend to it.

"The banks will now be very cautious" about what HNA is buying, said David Yu, a finance professor at New York University Shanghai.

Fire sale

As the company has come under increasing financial strain, it has shifted from buyer to seller.

HNA's latest move in its scramble to raise cash came this week when it announced it was selling two prime plots of land in Hong Kong for $2 billion only 15 months after it bought them.

But the money from that deal may just be a drop in the ocean. Research firm Bondcritic estimates HNA is on the hook for an eye-watering $100 billion of debt.

And even though analysts estimate the company's businesses are making money overall, it may not be enough.

Related: China's debt risks are rising

Data compiled by Orient Capital, another research firm, suggests that HNA's profits are barely enough to cover the cost of paying interest on all the money it has borrowed.

HNA declined to provide details about its finances to CNNMoney but insisted it "is currently in a very healthy financial position."

Analysts say the amount HNA owes has ballooned as the company has turned to more exotic types of borrowing. That includes China's murky "shadow banking" system, according to Orient Capital.

HNA declined to give details on where it has borrowed money from.

$240 billion in investments

The good news is that HNA has a lot of things to sell if it needs to raise funds.

The group had about $240 billion in assets at the end of last year, the company said in a statement this week.

It has trimmed its stake in Deutsche Bank in recent weeks to closer to 9%. But some experts think it would struggle to quickly offload trophy assets, such as the 25% stake in Hilton that it bought for $6.5 billion in 2016.

"Even if they want to sell the bigger, chunkier businesses, closing a typical M&A deal takes about a year or more," Yu said. "So it wouldn't really help them in the short term."

HNA will instead try to sell parts of its real estate empire that spans Asia, Europe and the U.S., Yu predicted.

Related: China's economy had a pretty great 2017, but 2018 could be tougher

Before this week's sale of the Hong Kong land, the company had suspended trading in the shares of several of its Shanghai-listed subsidiaries while it hunts for buyers for various assets.

The company also has high-profile acquisitions that are still in the works. A planned takeover of SkyBridge Capital by a group of investors led by HNA , is being held up by a review by the U.S. Committee on Foreign Investment.

Ratings agencies have repeatedly voiced concerns about HNA's finances.

Standard & Poor's this week cut its rating on debt linked to the group for the second time since November, moving it deeper into "junk" territory. The rating is "unofficial," S&P says, because the agency doesn't have enough information on HNA's finances.

Orient Capital analyst Andrew Collier said that much of HNA's debt is hidden off the group's balance sheet and therefore isn't reflected in ratings agencies' assessments.

Ownership questions

Investors are also still puzzling over who really owns the company.

In response to mounting questions, HNA announced last year that it is controlled by two little-known charities based out of China and New York. But that hasn't resolved matters.

For example, New Jersey-based firm Ness Technologies in December sued HNA and one of its subsidiaries, saying their attempt to acquire part of Ness' business fell through because they failed to address questions by U.S. authorities over their ownership. HNA has called the lawsuit "baseless and without merit."

Related: China has a new richest man

Despite all the pressure, HNA's leaders are still talking up its prospects.

In a rare interview last month with Reuters, co-chairman Chen Feng admitted the company was facing difficulties but was upbeat about its ability to fix them.

"Our business has become so big that we need to improve efficiency," he said. "The long-term goal remains unchanged, which is to become a world-class enterprise."

Terre Haute
Scattered Clouds
48° wxIcon
Hi: 49° Lo: 38°
Feels Like: 48°
Robinson
Scattered Clouds
47° wxIcon
Hi: 49° Lo: 37°
Feels Like: 46°
Indianapolis
Broken Clouds
46° wxIcon
Hi: 47° Lo: 36°
Feels Like: 43°
Rockville
Clear
44° wxIcon
Hi: 48° Lo: 37°
Feels Like: °
Casey
Broken Clouds
46° wxIcon
Hi: 49° Lo: 38°
Feels Like: 44°
Brazil
Scattered Clouds
48° wxIcon
Hi: 48° Lo: 37°
Feels Like: 48°
Marshall
Scattered Clouds
48° wxIcon
Hi: 49° Lo: 37°
Feels Like: 48°
Cool and Sunny!
WTHI Planner
WTHI Temps
WTHI Radar

Latest Video

Image

All You Need to Know for Monday

Image

Holiday traditions underway in downtown Terre Haute, what to expect this year with COVID-19 concerns

Image

Monday: Mostly sunny and chilly High: 48°

Image

Sunday Evening Forecast

Image

Christmas at the Zoo

Image

Wind Chill explainer

Image

Operation Christmas Child packing

Image

Jeep Junkies collect Toys for Tots

Image

Wrapping paper alternatives to protect the environment

Image

New restaurant opens in Vigo County

WTHI Events

 

Illinois Coronavirus Cases

(Widget updates once daily at 7 p.m. CT)

Cases: 656298

Reported Deaths: 12050
CountyCasesDeaths
Cook2808966303
DuPage41006746
Will34965530
Lake34159602
Kane29240443
Winnebago17303246
McHenry13008147
Madison12865217
St. Clair11915253
Champaign1006847
Sangamon911189
Peoria8113117
Rock Island7905120
Kankakee775396
McLean763049
Macon5950115
Tazewell584089
Kendall564641
LaSalle5548119
DeKalb456745
Adams434846
Boone353230
Vermilion341043
Whiteside340495
Williamson321877
Coles307157
Clinton294356
Ogle256725
Knox253456
Jackson244034
Effingham243317
Grundy242611
Henry233112
Stephenson226529
Marion221741
Randolph203123
Livingston200519
Morgan198333
Bureau191535
Macoupin189517
Franklin185622
Monroe179744
Christian173138
Lee168022
Jefferson167358
Woodford152526
Iroquois148624
McDonough148037
Logan144212
Fayette141128
Douglas124216
Fulton123710
Shelby119924
Union110926
Jersey110523
Montgomery104319
Saline102922
Crawford10049
Jo Daviess98916
Carroll97824
Warren97317
Perry94419
Pike93720
Bond91310
Hancock88310
Cass87119
Lawrence8559
Moultrie81310
Wayne81232
Greene75426
Clay73817
Clark70219
Piatt6995
Edgar68815
Mercer6659
Ford65821
Johnson6533
Richland64319
Mason62116
Washington5902
Jasper58111
De Witt57013
Cumberland56113
White5298
Massac4672
Wabash4608
Menard4111
Pulaski3752
Hamilton3573
Marshall3405
Unassigned3240
Brown2753
Henderson2540
Alexander2422
Schuyler2301
Putnam2240
Calhoun2150
Scott2110
Stark2043
Edwards2033
Gallatin1773
Hardin1200
Pope741
Out of IL100

Indiana Coronavirus Cases

(Widget updates once daily at 8 p.m. ET)

Cases: 295357

Reported Deaths: 5305
CountyCasesDeaths
Marion40796844
Lake25864448
Allen17025289
Elkhart16389209
St. Joseph16125217
Hamilton12225163
Vanderburgh9218112
Tippecanoe807627
Porter770176
Johnson5971161
Hendricks5719154
Vigo563274
Monroe519846
Clark486774
Delaware4721103
Madison4651119
Kosciusko437339
LaPorte436792
Howard321375
Warrick309072
Floyd301177
Bartholomew296262
Wayne292261
Cass291231
Marshall283642
Grant254147
Noble244246
Hancock238949
Henry234136
Boone231754
Dubois229230
Dearborn204629
Jackson200033
Morgan196043
Gibson171622
Knox170715
Clinton170420
Shelby170453
Lawrence169246
DeKalb168428
Adams160019
Miami150414
Daviess149143
Wabash148118
Fayette141233
Steuben139713
LaGrange135127
Jasper134911
Harrison134624
Montgomery127926
Whitley127410
Ripley121414
Decatur119842
Posey116613
Putnam115626
Wells115427
Huntington115210
White115221
Randolph114619
Clay111821
Jefferson110314
Scott97918
Greene97553
Jay93012
Starke87021
Sullivan85515
Perry80521
Spencer7957
Jennings79114
Fulton78717
Fountain7257
Washington6966
Carroll65313
Orange64828
Franklin63525
Owen5676
Vermillion5662
Newton53412
Parke5296
Tipton52826
Blackford50011
Rush5006
Pike49618
Pulaski36410
Martin3425
Brown3153
Benton3101
Crawford2711
Union2551
Switzerland2453
Warren2272
Ohio2227
Unassigned0265