China’s embattled HNA shuts Hong Kong unit as it struggles to repay debt
The closure of HNA Innovation Finance is part of the group’s downsizing effort, which includes a slew of overseas and domestic asset disposals, to slash debt
HNA Group is closing down a Hong Kong-based unit and merging its assets into the group’s logistics arm as the debt-laden conglomerate struggles to rapidly restructure and dispose of assets to repay debts, according to sources.
The company confirmed in a brief statement that operations at HNA Innovation Finance – set up only in March 2017 at the height of the group’s aggressive ambition – will be “integrated” into HNA Logistics, one of the main units of the conglomerate, to “concentrate resources and focus on development”.
The company didn’t provide additional specific details, but sources said HNA Innovation Finance was dismissed and an identified number of employees were laid off. The unit was launched as a platform for the group to expand its commodities and logistics businesses, aligning corporate interests with China’s Belt and Road Initiative, which included taking a stake last year in Glencore’s oil product assets.
Its unmaking is part of the group’s downsizing effort to trim its debt amid China’s crackdown on its global dealmakers’ risky financing. In addition, with HNA Group’s shift of focus to businesses that toe the government line, the role of HNA Innovation Finance has become an extra layer of cost and overlap.
“The purpose of the unit is lost since HNA's priority has changed from expansion to cutting debt … so it is being dismissed,” said one of the sources familiar with the matter but who declined to be named as they are not authorised to speak.
Through the HNA Innovation Finance vehicle, the group bought a 51-per cent stake in Swiss commodities trader Glencore’s oil products storage and logistics assets and Singaporean warehouse and delivery operator CWT. CWT assets were added to the Hong Kong-listed company renamed CWT International, a deal that received plaudits from Chinese state mouthpiece media. The Glencore acquisition made last December as an HNA Innovation Finance deal is now described as one by the group, according to a timeline on the HNA website.
“HNA has been furiously selling assets and raising capital as it takes a leading role in China’s ‘great unwinding’,” said Brock Silvers, managing director of Kaiyuan Capital.
“All we can say with certainty is that a slimmer HNA, more in line with Beijing’s dictates, will soon emerge,” Silvers said.
HNA has been scurrying to sell trophy assets bought in its US$40 billion buying spree over the past few years, acquisitions that invited the wrath of Chinese regulators as they were backed by risky financing through interlinking debt that involved mainland financial institutions. The shopping came to a hard stop a year ago as mainland regulators began to scrutinise and order HNA and other once acquisitive conglomerates Anbang Group and Dalian Wanda Group to unwind their highly leveraged positions.
In the past few months, HNA has executed a series of major disposals, with the latest being a 25 per cent stake in Spain’s NH Hotel Group for US$726 million and an office tower in Minneapolis in Minnesota for US$320 million. Disposals in the first half of the year – including a stake in Hilton Worldwide Holdings – have totalled about 100 billion yuan (US$15.6 billion), which is more than a third of what it had spent.
HNA’s retreat and efforts to get back into Beijing’s good books could not have been more timely. Beijing announced it will set up an international free-trade zone and port in the group’s home base Hainan province in April at the Boao Forum.
At the forum, the group signed a framework agreement with Singapore’s state investment company Temasek Holdings to explore opportunities in aviation and logistics and airport infrastructure. Last week (June 8), HNA-controlled Hainan Airlines said it would sell up to 20 per cent of its Shanghai-listed shares to Temasek’s fund management arm Temasek Fullerton Alpha and nine other investors.
The sale will raised over 7 billion yuan to fund its acquisitions of aircraft and aviation support assets, as well as expand its network.
Since the agreement with Temasek, reports have been rife that Temasek is mulling investments in HNA-owned Swissport Group and Gategroup Holding AG.