HNA unit’s 8 billion-yuan share issue plan riles shareholders

The conglomerate’s new fund-raising plan through a Shenzhen-listed subsidiary’s non-public offering has been attacked by current shareholders

PUBLISHED : Wednesday, 11 May, 2016, 9:09pm
UPDATED : Wednesday, 11 May, 2016, 9:09pm

Shareholders of HNA-Caissa Travel Group — a Shenzhen-listed travel agency owned by the HNA Group that has been one of China’s most acquisitive companies — said the firm’s plan to issue 8-billion yuan worth of new shares dilutes their holdings and threatens to further damage the value of their investment.

The stock has dropped by the daily limit of 10 per cent for the third straight day since trading resumed this week after a 6-month hiatus pending a deal to acquire Beijing Capital Airlines.

The company said on Sunday evening it had terminated the deal because it did not get regulatory approval in time and announced the private placement plan in a separate notice.

People familiar with the matter told the South China Morning Post the acquisition had likely fallen apart because Beijing Tourism Group — Beijing Capital Airlines’ state-owned shareholder — had reservations about becoming part of a listed company amid lacklustre investor appetite at the moment. The deal would have provided better synergies between the travel agency and the low-cost airline.

HNA-Caissa investors complained at an online question and answer session held on the stock exchange website on Wednesday that the company is destroying the value of their investment with the unexpected acquisition termination and the new share issuance that will dilute the value of their holdings.

“The restructuring deal failed to go through, but you remained suspended from trading till the end of the [6-month] time limit and then come up with this new private placement plan,” one shareholder wrote. “Private placement already hurts minority shareholders’ interest. What’s worse, the price is not determined. It is hard not to speculate that the plunging stock performance is to drive down new issue prices.”

HNA Tourism, the HNA company that most recently acquired Carlson Hotels, currently owns a 31.79 per cent stake in HNA-Caissa, which has a market capitalisation of 20 billion yuan. HNA Tourism and two companies controlled by HNA-Caissa’s management would subscribe to up to 3.5-billion yuan worth of new shares to be issued, according to the announcement.

The company has not set a date that would provide the basis for determining the price of the new issue.

Board Secretary Zhang Yanbo said in response that the company had also only just learnt of its failure to meet regulatory requirements and that it came up with the private placement “in order to protect shareholders’ interest”.

Funds raised from the plan would be spent on four projects targeting Chinese outbound travel that “would significantly raise the company’s future income and profit margins”, he said. The major shareholders’ and management’s participation in the plan show their confidence in the company, he said. He added that the date to determine the price of issuance has not been set because the company has not traded for enough days.

HNA-Caissa plans to use the funds raised to open more than 1000 shops and malls, create a company to promote cruise travel, and provide more services catering to the needs of Chinese travellers overseas.

Analysts said its share price could drop further, given its high price to equity ratio compared with its peers and the benchmark index that declined in the period.

“This 8-billion yuan private placement plan is rare for A-shares and even rarer for a company of its size,”one Shanghai-based fund manager said. “But it hardly looks serious. Only the cruise company looks like it might offer good return. I’m not sure how well this would fare with investors or even the regulator.”