Depth report

　　

When Chinese regulators stepped on the brakes of "overseas mergers and acquisitions" at the end of last year, many of China's most enthusiastic companies saw their global ambitions come to an abrupt end.

    But there is one company that continues to acquire non-stop, even if the number of Chinese overseas mergers and acquisitions fell to a three-year low in the first quarter of 2017, that is HNA Group.

    When HNA was first established in 1989, it was a private aviation operator headquartered in Hainan Province. In recent years, it has transformed into a behemoth holding company and is known as China's widest overseas acquisition buyer. The British "Financial Times" based on Dealogic's data analysis and concluded that in the past 28 months, HNA has finalized a total of 40 billion U.S. dollars in transactions.

    HNA’s acquisition targets include listed companies and unlisted private companies, covering multiple industries such as tourism, logistics, finance and real estate. It is particularly strong in the aviation industry, holding shares in at least 10 airlines, mostly Chinese airlines, but also Brazilian and South African airlines. In addition, HNA also has several airports and the world’s third largest aircraft. Leasing company.

    According to data from Thomson Reuters, HNA has announced 12 transactions this year, in the United States, the United Kingdom, Australia, New Zealand and Hong Kong. One of the high-profile transactions is that HNA will become the largest shareholder of SkyBridge Capital. The founder of SkyBridge Capital, Anthony Scaramucci, is Donald Trump’s Well-known supporter. HNA also increased its holdings in Deutsche Bank to 4.78%, which is the most important financial institution in Germany.

    In the social circle of Wall Street, HNA's status is also increasingly prominent. At the annual Purim ball held at the Jewish Museum in February this year, some financial figures came forward to express their appreciation to HNA Group Chairman Wang Jian for his enthusiasm for public welfare.

    Blackstone CEO Steve Schwarzman led a crowd to entertain Wang Jian, including hedge fund bigwigs Dan Och and John Paulson, and senior banker Paul • Paul Taubman and Robert Pruzan.

    However, several financiers who have directly cooperated or dealt with HNA privately admitted that when Beijing cracked down on capital flight and non-core mergers and acquisitions, HNA's appetite for overseas assets surprised them.

    "To be honest, I really don't feel that there is a strategy," one of them said. "When dealing with Chinese customers, you often encounter a different (business) philosophy, and you will even find that the buyer does not have a strategy. , But the difference here is the size of the (transaction) and the price they pay. It’s really surprising."

    There are many critics of HNA, and they question whether the group can integrate the acquired assets while continuing to bid. According to Dealogic's data, HNA currently has 51 pending transactions at home and abroad. During the acquisition process, the balance of US dollar debt accumulated by the entire HNA Group reached 13.2 billion US dollars.

    A banker who knows the group argued that its activities can be explained by photos taken by China's official media since 2015-these photos are of HNA's Buddhist co-founder Chen Feng and Chinese President Xi Jinping. He said that those photos were interpreted as a hidden government endorsement of HNA.

    Others argued that HNA's focus on specific industries, bidding for assets that match its plan, demonstrated discipline in this regard.

    They said that HNA is seeking to build a top-down air transportation service provider through the acquisition of cargo service provider Swissport International, flight catering provider Gategroup Holdings and an airport in Germany. It followed a similar model in the logistics sector, acquiring ground services and air cargo assets.

    In addition, people close to HNA stated that the group has begun to fine-tune its strategy to make itself more in line with China's policies. They said that HNA’s expenditure on each target in recent transactions usually does not exceed US$1 billion—it is believed that this is the threshold for China’s foreign exchange regulators to strictly review foreign investment.

    In addition to the shares of Deutsche Bank, HNA also acquired a quarter of the shares of Old Mutual's US asset management company for US$446 million this year. It also acquired a 51% stake in Glencore's oil storage and logistics division for $775 million. Last weekend, HNA agreed to acquire Singapore logistics company CWT for nearly US$1 billion.

    A person who has worked with HNA in cross-border acquisitions said: “They have begun to turn to smaller acquisitions and seek to obtain more equity. This has been very obvious in the past few months.” A person close to HNA said. For now, HNA is unlikely to pursue a grand deal like it did last year when it bought US electronics distributor Ingram Micro for $6 billion and acquired a 25% stake in Hilton Worldwide. People familiar with the matter pointed out that capital controls pose less challenges to HNA than some Chinese competitors, because in some cases, HNA can turn to global banks instead of Chinese banks to obtain acquisition funds.

    Consultants said that this is because it already has considerable overseas assets and can mortgage loans from global banks. Each newly acquired asset can then help finance the next acquisition.

    HNA’s aircraft leasing business shows how this strategy can be put into practice. A HNA subsidiary acquired Avolon Leasing for US$2.5 billion in 2015. A year later, HNA used Avolon to acquire the aircraft leasing business of CIT Group for US$10 billion, and obtained US$8.5 billion in financing from Morgan Stanley and UBS.

    That was HNA’s largest transaction so far, and people familiar with HNA expect the group to continue to implement this model. A person familiar with the matter said: "They will use the assets they have bought to purchase other assets."