LDN - Business

Exclusive: China Development Bank supervising HNA asset sales - sources

[December 14, 2018]

By Kane Wu, Shu Zhang and Julie Zhu

HONG KONG/BEIJING (Reuters) - China Development Bank (CDB) is leading a team to supervise HNA Group's asset disposals as the heavily indebted conglomerate scales back operations to a point that will leave it holding only core assets, people familiar with the situation said.

The finance-to-aviation group is more than a year into the process of unwinding a $50 billion acquisition spree that at its peak netted the group stakes in banks, fund managers, hotels, property and airlines, among other assets.

Faced with soaring debts and China's crackdown on aggressive dealmaking firms, HNA has pushed ahead with asset sales that have so far included real estate, stakes in hotels groups and discussions on key overseas units such as Ingram Micro and its luxury $300-million-plus corporate "Dream Jet".

A work group, led by China's largest policy bank CDB as HNA's biggest creditor, moved into HNA headquarters in Haikou in the southern province of Hainan in the second half of the year and is closely monitoring its asset sales, the people said.

The bank is not involved in individual sale negotiations but any deal would need its nod, according to two of the people.

Last month, Hainan Airlines <600221.SS>, HNA's main domestic carrier, said it was seeking a 7.5 billion yuan ($1.09 billion) loan from a group led by CDB, to help cover operating expenses.

Earlier this month, financing from CDB was instrumental in Airbus <AIR.PA> resuming stalled delivery of planes to HNA-affiliated airlines.

CDB is pushing HNA to get its house in order by the middle of next year, said two of the people, who could not be named as the information is confidential.

"It looks like the regulators have gone beyond simply cutting back HNA's assets and maybe moving toward complete dissolution of the company but they have yet to declare that as the official policy," said Andrew Collier, managing director of Orient Capital Research, which focuses on China.

An HNA spokesman said the group was refocusing its strategy around its core aviation-related assets to improve operations and strengthen its balance sheet.

"The company has remained disciplined and thoughtful as it takes decisive actions to streamline its portfolio and organizational structure," he said.

CDB declined to comment.

BACK TO CORE

HNA is planning to shed assets and retain only Hainan Airlines and its logistics business, three of the people said.

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A Chinese flag (C) flutters at the headquarters of China Development Bank (CDB) in Beijing, China September 23, 2018. Picture taken September 23, 2018. REUTERS/Florence Lo

It has been engaged with potential investors for its stakes in two Hong Kong-based carriers, Hong Kong Airlines and Hong Kong Express Airways, two of them said.

Singapore state investor Temasek Holdings had expressed interest in the airlines but walked away in the end, according to one of them.

HNA is also in talks to bring in new investors as controlling shareholders in its smaller regional airlines in China, the people said.

On Wednesday, HNA signed an agreement with state-owned Beijing Tourism Group to transfer shares in Beijing Capital Airlines.

"Overseas airlines and domestic regional airlines are not part of the core businesses and will likely go off its books," said a Hong Kong-based hedge fund analyst, who has been following HNA's unwinding of assets.

Last month, Hainan Airlines agreed a restructuring of its Urumqi Air unit which involved ceding majority control to the Urumqi government and leaving it with 30 percent.

Founded in 1989 as an airlines operator in China's Hainan island, HNA had been aggressively buying overseas assets and expanding its businesses since 2015, aiming to build a global empire with trophy holdings such as stakes in Deutsche Bank <DBKGn.DE> and Hilton Hotels Worldwide Holdings <HLT.N>.

Less than three years later, HNA has found itself reversing track. It has sold over $12 billion in overseas assets this year and has at least $23 billion more to offload, according to Reuters calculations based on filings and media reports.

The conglomerate has disposed nearly 300 billion yuan ($43.6 billion) worth of assets in 2018, its chairman Chen Feng told local magazine Caijing in November.

(Reporting by Kane Wu and Julie Zhu in Hong Kong, Shu Zhang in Beijing, additional reporting by Jamie Freed in Singapore; Editing by Jennifer Hughes and Himani Sarkar)

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