M&A

A web of debts

HNA’s finances still under question

Scaramucci-w

Scaramucci sold SkyBridge to HNA

Anthony Scaramucci sold his hedge fund to a Chinese group to free his path to become the mouthpiece of America’s president. But after lasting just 10 days as White House communications director ‘The Mooch’ found himself out of a day job.

If the sale of his firm, SkyBridge Capital, is approved within the next few weeks by the Committee on Foreign Investment in the United States the fast-talking Italian-American will have even more time on his hands.

If he is hunting for another high profile corporate communications job, then perhaps Scaramucci need look no further than HNA Group, the Chinese conglomerate which is purchasing Skybridge. It is certainly in need of more effective PR after a series of recent negative news stories concerning its shareholder structure and financial health.

How the notoriously loose-lipped Scaramucci would get on within the famously opaque HNA Group is anyone’s guess (for our backgrounder on the company see WiC362). The two certainly have a lot more in common than first appearances might suggest. For starters, there is the fact that HNA’s major shareholder is also New York-based, although in its case a charity organisation called Hainan Cihang Charity Foundation. How that nonprofit group became the single biggest shareholder in one of China’s most acquistive firms has been the subject of much speculation.

Amid theories that HNA is controlled by the family of a senior Party official (an allegation stoked by exiled tycoon Guo Wengui, who is facing defamation lawsuits from HNA, as well as Caixin Weekly magazine and starlet Fan Bingbing), the Financial Times reported in June that a mysterious businessman called Guan Jun, who lists a street-side salon in Beijing as one of his addresses, had purchased nearly 29% of HNA in 2016.

To allay concerns about its ownership structure, HNA said in July that Guan donated his stake in HNA to Hainan Cihang, while the foundation’s Hainan-based sister charity owns another 22.8%.

However, the revelations prompted more questions than answers. Swiss regulators, for example, are asking for more clarity about the company before they approve the acquisition of airline services company, Gategroup.

The FT also reports that investors in a second Swiss airlines services company, Swissport, are worried it is making loans to other HNA units to cover the group’s short-term liquidity needs.

One investor tells the newspaper he is concerned what might happen if domestic banks turn off the funding tap to the deal-hungry group, which has spent $40 billion in acquisitions over the past two years.

Chinese newspapers have been reporting that this is exactly what is happening. WiC has reported a number of times that Beijing is cracking down on the debt-fuelled M&A strategies of groups including Wanda and HNA. Last week, Huxiu said the Hong Kong Monetary Authority asked banks to provide details of all outstanding loans to HNA. It also reported that four out of the eight lenders that have been financing the group’s costly residential projects in Hong Kong have decided not to roll over their short-term loans, which are estimated to amount to $1.5 billion, with $447 million falling due in November (and the rest across January, February and June next year).

The land cost for these projects is about $3.5 billion and property analysts believe HNA could easily sell the plots at a profit given land prices have risen over the past two years.

HNA’s two Hong Kong property units maintain that their operations are running normally, although they have yet to disclose whether they have the cash to meet the redemptions if the banks fail to roll the loans over.

“Our lending banks show strong support to us,” one HNA executive told the South China Morning Post.

How would Scaramucci handle the situation? Brazen it out might be his PR advice. When he was White House communications director, he expressed great confidence that a positive outcome would emerge from his disastrous first week. “I want you to know I spent about 15 minutes on the phone talking with the President of the United States, who has given me his full support and his full blessing,” he told CNN. The only problem: Scaramucci swiftly got fired.


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