HNA Group gives in to Beijing overseas hotel investment crackdown

Beijing, China

China-based HNA Group, who is known for its high overseas investment activity, has agreed to drop out of any agreements blacklisted by the government.
At magazine Caijing's annual financial conference in Beijing, HNA CEO Adam Tan Xiangdong announced that the group will "listen to orders" and "not invest a cent in areas forbidden by the government. For projects we’ve already invested in–we weren’t stopped at the time of investment but now that the government forbids such investments, we will pull out. For property projects, we will withdraw and hand [the projects] to funds or REITs. I will sell all [overseas] buildings that I have purchased.” 

Before changing his tune, Tan stated earlier this week that the company would not pull out of the deal, even though Beijing named overseas investments in hotels, property and soccer clubs as "irrational." He explained, "Hilton is not a hotel, it is an investment company." Tan added that no laws were broken with these deals, which the National Development and Reform Commission approved. The NDRC and the commerce ministry also granted HNA an annual bonus totaling HK$23.54 million for complying with the regulations. He also said the company"earned money in almost all deals," especially after purchasing a 25-percent stake in Hilton Worldwide. Following the acquisition, the group has earned more than US$2 billion.

Just a year ago, the group's buying spree gained force with the HK$27.2-billion purchase of four land parcels at the former Kai Tak airport site in Hong Kong. Chen Feng, founder and chairman of HNA, told South China Morning Post that the group was planning to develop the site into an apartment complex and sell the apartments to its staff members. HNA paid "above market prices" to capitalize on the property boom in the island.

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HNA's acquisition list grew until summer 2017 and included investments in Deutsche Bank, Swissport, Carlson Hotels, Hilton Worldwide, Ingram Micro and CWT in its path to expansion in terms of revenues. Once summer hit, the Chinese government began enforcing harsher regulations on overseas investment after issuing an internal notice in June. It forced lenders to check the loans of the most active developers, specifically scrutinizing HNA along with Wanda, Fosun and Anbang

A Bloomberg report in September stated that four out of eight banks who financed HNA's acquisitions with a combined US$1.5 billion announced they would end its credit renewals and would not fund construction on the properties. In response to the cutbacks, Liu Junchun, an HNA private overseas investment department executive, told the South China Morning Post that the group had "sufficient capital" to continue financing its project pipeline. 

Escalating doubts over HNA's ownership continue to stoke the fire. Last week, market regulator Swiss Takeover Board claimed that the group had given false details during the 2016 Gategroup purchase. The group is also facing financial struggles brought on from its decade-long spending. It recently sold a one-year bond to start repaying its debt. 

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