HNA Group, the aggressive outbound investor that has recently run afoul of regulators both in China and abroad, now risks seeing some $2 billion in acquisitions fall apart in the US, Singapore and Malaysia.
The transactions are at risk as the company’s business partners raise questions over the mainland conglomerate’s ability to follow through on a flurry of recently signed agreements, following a fresh crackdown on outbound capital flows by China’s central government.
The company is also facing inquiries from US investment banks and regulators regarding a murky ownership structure, which even its own executives have indicated may be a front for unnamed beneficiary owners.
CFIUS Holds Up Skybridge Deal, Entertainment Acquisisition
In the US, HNA’s planned $416 million deal for a California company is collapsing under scrutiny by US authorities. Last November, the mainland transportation and property giant agreed to buy up to 34.9 percent in Global Eagle Entertainment, a Los Angeles-based in-flight entertainment provider, through its unit Beijing Shareco Technologies.
The acquisition would have made HNA the company’s single largest shareholder. The deal is now dead, as the parties have been unable to get approval from the Committee on Foreign Investment in the US (CFIUS) before a deadline set in their original agreement.
CFIUS, which reviews foreign investments with national security implications, is also vetting HNA’s proposed purchase of a controlling stake in New York investment firm Skybridge Capital. If approved, HNA would pay an estimated price of around $200 million to buy the stake from Anthony Scaramucci, the new White House communications director.
$570M Singapore REIT, $1 Bil Logistics Deal in Trouble
The US regulatory snare is the latest setback besetting the beleaguered Chinese conglomerate, which has signed over $30 billion in overseas deals since the start of last year. HNA is under mounting scrutiny from foreign lenders and regulators over its opaque shareholding and financial structure, and from the Chinese government, which is clamping down on some of the country’s biggest outbound investors.
Another foreign deal being called into question is a proposed S$775 ($570) million, HNA-backed real estate investment trust that would have listed in Singapore. Last month HNA said it would take a stake of at least 35 percent in the commercial REIT as well as a 75 percent stake in the trust’s manager, set up in partnership with Singapore’s AEP Investment Management. Office towers in Australia would have comprised the bulk of the initial portfolio, along with assets in Singapore and Britain.
However, that deal is now in jeopardy as Bank of America Merrill Lynch, which was advising the Chinese firm and AEP, reportedly told its investment bankers to stop working with HNA on deals including the proposed trust. AEP is said to be considering proceeding with listing the trust even if HNA drops out.
Adding to HNA’s overseas challenges, the group is reportedly facing tougher scrutiny from Malaysian banks that are working on financing for its proposed $1 billion acquisition of CWT Ltd, a Singaporean logistics operator with a portfolio of warehouse properties. Questions over HNA’s leverage ratios and its ability to service its debts may prevent an agreement on funding.
Mainland Giant Says It’s Owned By a Charity That May Not Exist
HNA on Monday moved to allay concerns about its financial integrity by revealing that more than half of the closely-held conglomerate is now owned by a pair of obscure charitable foundations, after a recent shareholder restructuring. This disclosure, though, only raised more questions. On Thursday, The Wall Street Journal reported that the New York charity which HNA said holds a nearly 30 percent stake in the group has yet to commence operations, and has not yet received ownership of the stake.
HNA is now under fire from the Chinese government over a debt-fueled acquisition binge that has seen the Fortune Global 500 company’s assets more than quadruple to RMB 1.2 trillion ($177.5 billion) from 2014 to 2016. Last month, HNA along with Fosun International and Dalian Wanda Group were reportedly singled out by Chinese banking regulators for a lending clampdown on the acquisitive private firms.