HNA Finds Wall St.'s Enthusiasm for Chinese Conglomerates Is Cooling

HNA Group says that Wall Street’s biggest banks are knocking at the door to do business with it as the huge Chinese conglomerate buys up businesses around the globe.

But one of those banks is now walking away.

Bank of America has decided not to do business with HNA, citing concern over the company’s opaque structure, among other issues, according to an internal email reviewed by The New York Times.

While the bank does not have major commitments with HNA, its pullback is a sign that Wall Street’s enthusiasm for deal-hungry Chinese giants is beginning to cool because of these companies’ often murky ownership and large appetite for risk.

The bank’s email listed concerns about HNA, including its shareholding and corporate structure, Chinese regulatory interest in the company and its complex business model. It also cited allegations of political connections. As a result, the bank decided to remove itself from any transactions, a senior executive wrote.

“We simply don’t know what we don’t know, and are not prepared to take the risk,” Matthew M. Koder, Bank of America’s president for Asia Pacific, wrote in the email, dated June 28.

“Given the importance of maintaining rigorous client selection standards, we have decided not to be involved with transactions with the HNA Group at this point in time,” Mr. Koder added.

Bank of America declined to comment.

HNA declined to comment.

HNA is a privately held company that has received much of its funding from Chinese state banks, which have given HNA a $60 billion line of credit, according to corporate filings.

Bank of America had been in discussions with HNA to enter new lending partnerships in future transactions, according to a person with direct knowledge but who was not authorized to speak publicly because the discussions were private. It has also been among several other banks helping HNA to take at least one of its myriad private companies public.

The cold shoulder from one of the biggest banks in the United States is the latest in a series of road bumps for HNA, an aggressive conglomerate whose holdings include an airline, Hilton Hotels and a technology wholesaler.

The bank’s decision came days after reports that a Chinese banking regulator had asked domestic banks to examine their exposure to some of China’s biggest overseas acquirers, including HNA Group. Speaking at a briefing in Beijing on June 22, Liu Zhiqing, a senior banking official at the China Banking Regulatory Commission, warned that these companies could pose a “systemic risk” to the country’s banks.

Anbang Insurance Group was the first big Chinese company to make a splash overseas when it bought the Waldorf Astoria in Manhattan three years ago, drawing attention to Chinese companies with global ambitions and huge war chests. And Dalian Wanda quickly became a heavyweight in Hollywood — spending more than $8 billion on entertainment companies like AMC Theaters and Legendary Entertainment.

This year, however, those companies appeared to hit the brakes on their drive to acquire Western companies.

HNA’s deal-making machine, on the other hand, has seemed relentless.

In recent years, HNA has acquired the California technology companies Ingram Micro and Swissport and bought large stakes in Hilton Hotels and Deutsche Bank. Its 9.99 percent stake in Deutsche Bank has now drawn scrutiny from the European Central Bank, which is said to be looking at whether HNA meets the criteria for large bank shareholders.

Questions about its ownership structure have long dogged HNA.

The Chinese billionaire and social media celebrity Guo Wengui has level ed public accusations that HNA is controlled by one of the most powerful families in China and by the relatives of people running the country’s anti-corruption campaign. Mr. Guo has posted data on Twitter about HNA’s corporate structures and even the passport numbers of some of those relatives.

HNA has denied those ties, saying that Mr. Guo’s allegations are “completely unfounded and false.”

Nevertheless, one of Bank of America’s concerns highlighted “too many irregularities in the historical and current shareholding and corporate structure,” as well as the “opaque nature of some of the existing shareholders” among its concerns.

HNA has said that it relied on American and European banks to help fuel its acquisitions, borrowing billions of dollars for its transactions. Those banks, as well as lawyers and auditors, have examined HNA.

Yet, questions persist as to whether the banks have the proper due diligence and risk control processes for dealing with Chinese companies.

For most of the big banks, doing business with HNA has been lucrative. On one side of business, banks have helped HNA buy companies by arranging what is called collateralized financing. That has entailed allowing HNA to borrow money against the shares of the company that it is acquiring.

Big banks have also received large paydays for advising on HNA’s acquisitions. HNA and its affiliates overseas have paid an estimated $100 million in fees to banks advising on mergers and acquisitions since 2016, according to estimates by Dealogic.

Let's block ads!(Why?)

Read again HNA Finds Wall St.'s Enthusiasm for Chinese Conglomerates Is Cooling : http://ift.tt/2ubDmLj

Let's block ads! (Why?)