Hong Kong’s Central Bank Orders Health Check for HNA, Wanda Finances

The Hong Kong Monetary Authority, the city’s de facto central bank, is said to be reviewing lending to HNA Group and Dalian Wanda Group as pressure mounts on the debt-strapped mainland conglomerates.

Banks were required last week to provide information to the HKMA on their lending to the companies, including outstanding loans and total credit extended, according to a report in local newspaper Apple Daily, citing unnamed sources. The HKMA did not comment on the story beyond saying that it engages in discussions with banks on various issues, Bloomberg reported.

HNA and Wanda are among a cohort of mainland firms that have been targetted by Chinese regulators for their debt-fuelled overseas deal-making, which the central government has identified as a systemic risk to the economy. In June, regulators instructed the country’s major state-owned banks to restrict lending to the acquisitive firms, including HNA and Wanda as well as investment group Fosun International.

HNA Takes the Heat in Hong Kong

The stepped up scrutiny on HNA in Hong Kong comes after the mainland conglomerate became the biggest buyer of land for housing in the city over the last year. HNA scooped up a series of residential sites in Kai Tak for a total price of about HK$27 billion ($3.5 billion) from November 2016 through March 2017.

The group headed by billionaire Chen Feng has been hyperactive globally, having signed more than $50 billion in deals over the two-year period through July, at least $8 billion of which are still pending, according to Thomson Reuters.

The company is paying a heavy price for its buying binge. HNA’s financing costs jumped to RMB 14.2 billion ($2.1 billion) during the first half of 2017, more than doubling year-on-year, and exceeding the group’s earnings before interest and taxes, according to a Bloomberg analysis.

Last month, it was reported that HNA was facing hurdles moving capital out of China to finance at least two overseas deals, including a mandatory takeover offer to buy all outstanding shares in Sweden-based Rezidor Hotel Group.

HKMA Scrutiny Adds to Wanda’s Offshore Woes

Dalian Wanda Group is also becoming a familiar focus of China’s financial regulators. The Beijing-based property and entertainment conglomerate controlled by tycoon Wang Jianlin, has been singled out for strict curbs on its overseas shopping habit. In June, Chinese president Xi Jinping reportedly signed off on a set of penalties relating to six of Wanda’s foreign deals, including its 2012 purchase of US theatre chain AMC Entertainment Holdings and its 2016 buyout of film producer Legendary Entertainment, which were said to violate China’s cross-border capital controls.

Amid the stepped-up scrutiny, Wang pledged that he would confine his main acquisitions to China in the future. The company last month was reported to have transferred Nine Elms Square, a newly purchased, £470 million ($605.3 million) residential project in London to Guangzhou R&F Properties and Chongqing-based CC Land, in the group’s latest effort to offload its overseas properties.

Hong Kong-listed subsidiary Wanda Hotel Development last month announced that it would sell its stakes in nearly $4.5 billion in overseas real estate projects to the group’s privately held commercial development unit. The group’s drive to de-leverage has also involved selling off 77 hotels and 13 theme park projects to R&F and Sunac China Holdings, respectively, in a RMB 63.7 billion ($9.4 billion) mega-deal.