Mergers & Acquisitions

Can a US$48 billion global shopping spree take this Chinese company into the Fortune 100?

The company, driven by the founder’s wish to put HNA among the world’s 100 largest companies, owns 330 billion yuan of global assets since it began its major acquisitions in 2010

PUBLISHED : Monday, 22 May, 2017, 12:17am
UPDATED : Monday, 22 May, 2017, 4:54pm

HNA Group, which has been on a global shopping spree for assets over the past seven years, is poised for promotion to Fortune’s list of the world’s 100 largest companies this year, in a move that vindicates its founder’s drive to put the company on the world map.

HNA, which counts Hainan Airlines, Hong Kong Airlines and 25 per cent of the Hilton hotels group among its one trillion yuan (US$145 billion) of assets, owns 330 billion yuan in overseas assets since its major acquisitions began in 2010.

The Hainan-based company, which generates 600 billion yuan in annual revenue, was ranked 353rd on Fortune’s 2016 list.

“When the data comes out by the end of the year, [it will show that] we are almost there” among the top 100, HNA’s chief investment officer James Wang told the South China Morning Post. “Being one of the top 100 companies is a recognition.”

Fortune could not be reached to confirm how HNA will be ranked in 2017. Still, an inclusion would vindicate the motivation of HNA’s founder Chen Feng, a former official of the Chinese aviation regulator, who founded the group in 1993 with a handful of aircraft.

Hainan Airlines currently operates China’s fourth-largest fleet.

Chen began diversifying the business during the global outbreak of the severe acute respiratory syndrome in 2003 into logistics, tourism and real estate. HNA bought 45 per cent of Hong Kong Airlines in 2006.

In 2010, the company started its global buying spree by investing US$150 million to buy Australia’s Alco Rental as there were numerous outbound merger and acquisition opportunities in quality overseas assets after the global financial crisis. Since then, the group’s acquisitions picked up pace, especially in Europe and North America.

HNA funded its offshore acquisitions using revenue earned from overseas and capital sources obtained from outside China, separating them from onshore finances, company officials said.

Two years ago, HNA acquired Swissport, the world’s largest ground and cargo-handling service provider, for US$2.8 billion. In the same year, it bought international aircraft leasing firm Avolon Holdings through its Bohai Leasing unit for US$2.6 billion.

Last year alone, it spent US$26 billion on acquisitions outside China, according to Dealogic, such as the purchase of Ingram Micro, the world’s largest distributor of IT products and supply-chain group, for US$6 billion. It also acquired a 25 per cent stake in Hilton for US$6.5 billion.

Amid all the worldwide shopping spree, it was the successive string of acquisitions in Hong Kong – often for assets at prices that exceeded valuations – that grabbed the most attention.

Over a four-month period, HNA paid HK$27.2 billion for four pieces of land at the former Kai Tak airport site, breaking one price record after another.

HNA Group pays HK$7.44b for fourth plot of land at former site of Hong Kong airport

If the acquisitions had not raised the attention of China’s currency regulators, who were tightening remittance controls to deter capital flight, it certainly did with fugitive tycoon Guo Wengui.

Guo alleged in several interviews from his US hideout that HNA was implicated in infighting within the leadership of the Communist Party.

Shares of HNA Holding Group plunged almost 17 per cent on April 24, when one of Guo’s interview was aired and subsequently cut short.

HNA refuted Guo’s claims, saying the company “is a law-abiding company that operates with integrity and all of our business activities are in compliance with the relevant market regulations”, according to a statement in response to the Post’s queries.

HNA planned to combine its four Kai Tak land parcels into a single “world-class” project with two million sq ft of floor area, the company said.

“We are particularly interested in Kai Tak as we have witnessed the great development potential of Haikou’s former airport site,” Wang said. “We don’t think we overpaid. That can be proven from the sales results of other sites [in Kai Tak].”

After developing the Kai Tak land into apartments, the group said it planned to sell “a significant portion” of the units to staff around the world, Wang said, adding that more than half of the company’s 410,000 employees worked outside mainland China.

HNA plans to recruit 1,000 new staff by the end of this month.

“We will see if there are any acquisition opportunities in the city and may inject overseas assets into Hong Kong’s units,” Wang said. “We have invested more than 30 billion yuan in Hong Kong, from property, finance to logistics. It accounts for about 3 per cent of our total assets. It is not a big number.”