HNA Seeks to Sell Offshore Real Estate Holdings After Mainland Crackdown

After making more than $30 billion in cross-border acquisitions, China’s HNA Group says that it is trying to sell some of its offshore holdings, particularly real estate, after it was targetted for credit checks by mainland authorities earlier this year. The switch to sell mode also coincides with a downgrade in the group’s credit assessment by a major ratings agency.

HNA CEO Adam Tan told attendees at a Beijing conference this week that the mainland conglomerate is considering selling some of its overseas assets, including real estate holdings, according to an account in the Wall Street Journal. The move would bring the transportation-based conglomerate in line with recent government proscriptions against Chinese companies buying real estate, film studios and other businesses deemed to be too risky or of questionable value to China’s national strategies

The sudden decision to start selling assets comes just two weeks after another of China’s most aggressive cross-border players, Dalian Wanda, was said to be selling $5 billion in real estate assets, after it too received pressure from the government over its offshore acquisitions.

After $30B in Acquisitions, HNA Gets a Math Lesson

In addition to reducing HNA’s political risk, an asset sale would remove some of the financing burden on a company which is paying high rates of interest for what are often low-yielding assets.

The Journal account by Hong Kong-based correspondents indicated that HNA has been discussing disposals of its foreign assets with bankers recently to help reduce the group’s $100 billion debt pile, as well as to eliminate assets that are now considered out of bounds.

In a report published this week by S&P, the ratings agency indicated that it had lowered HNA Group’s credit profile to “b” – five levels below investment grade – from b+, due to concerns over upcoming debt payments and the group’s cost of capital.

In a statement on the downgrade, S&P noted that, “We base the revision on our view of HNA group’s aggressive financial policy and risks over tightening liquidity. HNA group has significant debt maturities over the next several years and its funding costs are meaningfully higher than that of a year ago.”

Political Science Can Be a Tough Subject Too

In addition to its financial woes, HNA has also been getting kicked in the shins by governments both at home and abroad.

In a statement last week, the Swiss Takeover Board, which reviews foreign investments in the European nation, cited HNA for giving false information about its ownership to the regulator during its takeover of Swiss airline catering firm Gategroup last year. According to a report in Reuters, HNA also gave incorrect financial details in its filings with the European government.

The Swiss criticism followed revelations earlier this year that individuals previously listed as HNA Group’s major shareholders had been acting as secret proxies for the true beneficial owners.

In September banks in Hong Kong were reportedly required to provide information to the city’s monetary authority on their lending to both HNA and Wanda, including outstanding loans and total credit extended. That Hong Kong move followed June instructions by mainland authorities to the country’s major state-owned banks to restrict lending to firms including HNA, Wanda and investment group Fosun International.

During October, the group’s Bohai Life Insurance Corp was banning by mainland authorities from conducting some financial transactions with other parts of the HNA Group, after it failed to report some related-party transactions, made some untimely disclosures and had a compensation system that didn’t meet regulatory requirements.