The rate at which HNA Group is downsizing its overseas empire has sped up since the death of its co-chairman Jian Wang in July. Subsidiaries of the private Chinese conglomerate have even started to sell recently acquired overseas assets to a bid to avoid insolvency. And the sale of more of its assets continues as senior executives continue to leave.
One recent sale highlights HNA’s desperation. On November 19, BrightSphere Investment Group, an asset management firm listed on the New York Stock Exchange, announced that Paulson & Co., a hedge fund controlled by US investor John Paulson, had agreed to buy HNA's 24.95% stake in the group.
BrightSphere said that the stake would be sold for around $371 million. Given that HNA paid $446 million for its stake in the asset management firm only 18 months ago, this equates to a loss of roughly $75 million for HNA.
In a possible swipe at the Chinese conglomerate, BrightSphere chairman James Ritchie said: “The transfer of shares to a respected institutional investor such as John Paulson will bring the clarity of ownership which is positive for all our constituencies.”
HNA has received much criticism for its opaque ownership.
Investors will be watching to see whether HNA’s fire sale will resolve its precarious debt situation. The firm racked up massive debts when it splurged an estimated $40 billion in acquisitions around the world between 2015 and 2017.
According to its financial statements, HNA had cut 10.7% off its total debt to Rmb657.41 billion ($94.7 billion) in the six months to the end of June. Nonetheless, the company’s debt is still high, with total debt to Ebitda at 21.36 times in the first half of the year.
Since last year, the Chinese government has pressured large Chinese conglomerates like HNA, Anbang Group and Wanda Group to sell their overseas assets, as part of Beijing’s deleveraging campaign and but also partly out of fears of capital flight. After Wang death in France on July 3 - French police say that it was in all probability the result of a fall - the rate of HNA’s divestments has accelerated.
Feng Chen, a co-founder of HNA, replaced Wang as chairman on July 5. Subsequently, Chen was briefed by his staff on HNA’s assets in Hong Kong, and many of HNA’s subsidiaries have since been sold or shut down, a former employee of Hainan Business Services, a Hong Kong subsidiary of HNA, told FinanceAsia.
Hainan Business Services has recently closed, the former employee disclosed. “HNA quickly shut down companies in Hong Kong after Wang’s death.”
HNA has been selling assets since last year. “But with the new chairman, it just feels more obvious. Everyone in the company can feel the change,” an HNA employee based in the group's headquarters in Haikou, the capital of Hainan province, said.
“Wang is really high-profile, while Chen is very cautious and low-profile. Wang focused on meeting targets, Chen has emphasized 'don’t do anything wrong, lay low',” the employee added.
FinanceAsia has seen an HNA document dated August 1, which announced the closure of HNA Business Services. But the Hong Kong Companies Registry Electronic Search Services still describes HNA Business Services as “live”, indeed the online search service shows 61 Hong Kong companies whose names include HNA, which are described as live. This is just one indication of the vast extent of HNA’s businesses outside mainland China.
“We’re trying to sell offices in Hong Kong. But I don’t think we have found buyers yet. It’s a bit last minute,” said an employee.
Sources within the company claim that HNA has delayed salary payments for some employees in its headquarters.
Another Hong Kong subsidiary of HNA is on the verge of closure. The Hong Kong Companies Registry is considering striking off HNA International Investment Construction Group, according to a Hong Kong corporate document dated November 2.
HNA has reversed course on several deals including planned joint ventures, and is taking a defensive rather than an offensive stance on expansion, said a source who works with lawyers engaged in asset securitization and finance leasing of aircraft and ships.
“HNA is under pressure to deleverage, as it has potentially exposed lenders to significant risk, especially in the light of a more fragile trade environment and increasing protectionism,” said Bill Majcher, president and founder of EMIDR, an international corporate risk advisory that specialises in asset recovery and remediation of corruption.
A source outside HNA said that the group wishes to improve its balance sheet in the hope that other companies will be more willing to do business with it.
CWT International, a Hong Kong-listed subsidiary of HNA, is an example of HNA’s retreat from overseas acquisitions. Then called HNA Holding Group, it completed a $981 million acquisition of Singapore logistics company CWT in December last year. Shortly afterwards, it changed its name to CWT International.
Nine months later - on September 28 - CWT International announced that it had sold several warehouses that had originally belonged to the Singapore company for S$730 million ($530.6 million). The company's interim report this year admitted that the acquisition of the Singapore company had incurred serious debt risks.
As of June 30, CWT had borrowings due in September totaling HK$4.4 billion ($561.7 million). “HNA would be unable to repay these borrowings in full when they fall due in September or another later repayment date, unless it is able to obtain sufficient refinancing. These conditions may cast significant doubt on the company’s ability to continue as a going concern. The directors have taken refinancing measures,” the interim report disclosed.
CWT is still operating and its shares still trade on the Hong Kong Stock Exchange, though the stock price has slumped in the past five months. Its share price of 14.4 Hong Kong cents on November 19 is less than half of its share price of 32.5 Hong Kong cents on June 20.
A reflection of the change in culture under its new chairman is that several senior executives have resigned from HNA and its subsidiaries. One notable example is James Wang Shuang, a former co-chairman of CWT and who previously held a senior role in HNA’s overseas businesses.
Wang was replaced as HNA chief investment officer by Dennis Chen Chao on August 2, yet only a month previously HNA told creditors that he would oversee the conglomerate’s offshore debts in that role.
At the end of July, Wang resigned as vice chairman and chief executive of HNA Group (International), a major offshore arm of HNA, according to Hong Kong corporate documents. At its peak, HNA Group (International) operated 400 hotels in 29 countries, leasing services for aircraft and ships, as well as financial services, according to Bloomberg.
Hong Kong corporate documents also reveal that Wang left at least four Hong Kong subsidiaries of HNA on the same date of August 13. These four subsidiaries are HNA Group, HNA Group (International) Investment, HNA Group (International) Asset Management, HNA Group (International) Financial Services, HNA Business Services.
These are not small companies. The asset management arm, for example, has a paid-up capital of HK$27.93 billion. In April, it increased its stake in Austria’s largest independent fund house, C-Quadrat Investment, from 9.9% to 74.8%, according to Schonherr, the domestic law firm involved in the deal. C-Quadrat is estimated to be worth more than €220 million ($228.5 million).
And it is through its holdings in C-Quadrat, that HNA holds a 7.6% stake in Deutsche Bank. Since the beginning of this year, HNA has pared down its stake in the German investment bank from 10%. Deutsche Bank declined to comment on media reports that HNA plans to sell its entire 7.6% stake in Germany's largest lender.
But Wang is not the only high profile resignation. Li Xiaoming, a former chairman of CWT International, stepped down as director of HNA Group (International) at the end of October. And Hong Kong corporate searches have found more resignations from other Hong Kong subsidiaries of HNA in recent months. Guo Qifei gave up his position as director of HNA International Recreational Property and HNA International Investment Holdings on July 23, for example.
An HNA spokesman told FinanceAsia, “We are committed to streamlining our strategy to focus on our core aviation, tourism and logistics businesses as we position HNA Group for the future. As evidenced by our recent financial results, our efforts to optimize the portfolio, improve operations and strengthen our balance sheet is beginning to pay off. During the first half of the year, we increased our revenues and profitability, while meaningfully reducing our debt.”
