Earlier this month Stephen Schwarzman presented an award to HNA in New York, but the Blackstone boss took home the real prize this past week when his investment firm reportedly agreed to buy a downtown Sydney office tower from the troubled mainland conglomerate.
HNA Group, which is mired in a financial crisis after spending some $40 billion on overseas assets in the last five years, has reportedly agreed to sell 1 York Street in Sydney to the US alternative investment giant’s Blackstone Real Estate Partners (BREP) Asia fund for about A$200 million ($161 million), according to a Bloomberg report citing sources with knowledge of the matter.
Hainan-based HNA had purchased the 22-storey building for A$117.7 million in 2011.
Last December, the company’s CEO Adam Tam said HNA was looking to sell off real estate assets in New York, Sydney, and Hong Kong to comply with Chinese government restrictions, after snapping up dozens of properties as part of its global deal spree.
HNA is also said to be seeking outside investors for two residential plots it holds in Hong Kong, as the indebted airline-to-property conglomerate faces a mounting financing crisis.
HNA Cashes in on Blackstone Ties
Through the reported Sydney deal, HNA builds on an extensive history with Blackstone, which includes paying the US private equity firm $6.5 billion for a 25 percent stake in Blackstone-controlled Hilton Hotels in October 2016. In the same month, HNA EcoTech agreed to buy China-based outsourcing firm Pactera Technology International from Blackstone for a reported price of about $675 million in cash.
Those deals followed HNA’s purchase of Blackstone’s stake in Hong Kong property developer Tysan Holdings for HK$2.62 billion ($337 million) earlier in 2016.
Just last week, Blackstone showcased its affection for the cash-strapped Chinese firm at a Manhattan party held by the China General Chamber of Commerce. HNA received the “Brand of the Year Award,” which Blackstone boss Stephen Schwarzman presented to HNA’s chairman Chen Feng.
Throwing in the Towel on Australia
HNA bought the building at 1 York Street from Aussie wealth management group Colonial First State in September 2011, with an initial yield of 8.65 percent. Built in 1973, the grade B office tower has 18,400 square feet (1,709 square metres) of leasable area and 125 parking spaces.
The company boosted its profile Down Under in May 2016, by scooping up a 13 percent stake in Virgin Australia, the country’s second-biggest airline, through a A$159 million ($115 million) equity investment. HNA said it expected the stake to increase over time to nearly 20 percent.
And in March of last year, HNA signed a framework agreement with Singapore’s AEP Investment Management on setting up a real estate investment trust centred on Australian office assets. But the plan for the Singapore-listed, S$775 ($570) million trust stumbled amid mounting scrutiny of HNA’s aggressive, debt-fuelled investments and opaque ownership structure.
On Thursday, a unit of the group announced to the Shenzhen stock exchange it has scrapped the project, called HNA Commercial REIT. “Both parties have decided to terminate this cooperation as the HNA Commercial REIT’s IPO has been progressing very slowly due to many factors,” the statement said, without elaborating.
Headaches Intensify for Debt-Fuelled Firm
The news comes as HNA struggles to cope with escalating financial woes, including an impending RMB 12 billion ($1.88 billion) wall of bond maturities in the third and fourth quarters, according to Bloomberg calculations.
The group’s total outstanding debt jumped more than a third in the first 11 months of 2017 to RMB 637.5 billion ($101 billion), including bank loans and bonds, according to a filing. This week, two more HNA subsidiaries halted their stock from trading pending “major” announcements, bringing the total to seven suspended units since November.