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HNA Group

HNA’s US$41 million loss on building sale near Trump Tower is the latest price paid by Chinese firms for Donald Trump’s chokehold on China

  • The Chinese conglomerate sells its mid-Manhattan office building at a loss little more than two years after buying it
  • The sale follows US concerns that HNA’s ownership posed a security threat
PUBLISHED : Thursday, 10 January, 2019, 6:06am
UPDATED : Thursday, 10 January, 2019, 10:51pm

Chinese conglomerate HNA Group sold its stake in a Manhattan office building this week, a deal that led to US$41 million in losses for HNA and its US partners and became the latest example of a Chinese business struggling as America tightens its grip on its critical assets.

HNA did not want to sell the mid-Manhattan property – 850 Third Avenue – that it bought little more than two years ago and had used as its US headquarters. But it did not have a choice.

A few months after the purchase in 2016, the building suddenly became a national security concern to the United States when Donald Trump was elected president. The building, on Third Avenue between 51st and 52nd Streets, was near Trump Tower, Trump’s New York residence; more significantly, it houses the police station that has security responsibilities for the Trump building.

Last summer, the US started investigating the building and asked HNA to sell the property, which eventually led to this week’s sale. The building was sold for US$422 million to New York real estate investor and developer Jacob Chetrit and his sons.

Inquiry into HNA’s New York headquarters may show escalation in US-China trade war

The sell-off has made HNA the latest victim of tightened Trump administration regulations that are clamping down on Chinese investment in the US. In 2018 alone, the US prevented a series of large merger deals by Chinese buyers, mostly in the technology sector.

An attempt by Ant Financial, an affiliate of Chinese e-commerce giant Alibaba, to acquire the US payment company MoneyGram was shot down early in the year (Alibaba owns the South China Morning Post). Singapore-based Broadcom’s US$117 billion bid for chip maker Qualcomm was also blocked because of the buyer’s business ties to Beijing.

The stated US concern was that China’s increasing access to US critical information in technology, military and other areas through such deals might pose security threats.

But the decision to examine HNA’s 2016 property purchase strongly signalled that the US has begun to cast an even wider net over Chinese investments, with the scope of deals subject to review going well beyond the tech sector.

Trump signs bill imposing tougher regulations on foreign investments

Also over the summer, the US Congress expanded the reach of an inter-agency body, the Committee on Foreign Investment in the US (CFIUS), to include a much broader range of foreign deals for American businesses.

The new law added real estate purchases by foreign investors to the list of deals subject to review. In particular, it authorised CFIUS to review the purchase or lease by, or concessions to, a foreign company of US real estate near any US military installation, another government facility, or property of the United States government considered sensitive for reasons relating to national security.

As a result, Chinese acquisitions of American companies plummeted 95 per cent from their peak two years ago. Chinese buyers bought merely US$3 billion worth of US assets in 2018, compared to US$55.3 billion in 2016, according to the global research group Mergermarket.

Debt-laden HNA sued by Hong Kong office landlord for HK$8.3 million

Soon after HNA put 850 Third Avenue on the block, financiers and investors on Wall Street speculated how low they could bid for the assets. Everyone knew it was time for bargains when the seller’s hands were tied, people involved in the sale told the Post while the process was under way.

The US$41 million of loss, therefore, did not come as a shock. But it signifies more pain for major Chinese owners of US assets like HNA and Anbang Insurance, which owns the Waldorf Astoria hotel, as they continue selling overseas holdings amid elevated tensions between the two countries.