HONG KONG (Reuters) - At least two of HNA Group’s overseas deals have hit a hurdle as the Chinese conglomerate struggles to take money out of China, said four people familiar with the process, amid a widening crackdown by Beijing on debt-fueled corporate acquisitions.
The two HNA deals hit by the crackdown on transferring money outside China are its announced acquisition of the London-based International Currency Exchange (ICE) for about 200 million pounds ($264.36 million) and a mandatory tender offer to buy a larger stake in a Swedish hotel group, the people said.
China started gradually tightening capital outflows in the second half of last year, slowing the hectic pace of dealmaking by domestic companies looking to scoop up overseas assets ranging from movie studios to football clubs.
The regulators stepped up pressure in June, ordering a group of lenders to assess exposure to some of the more aggressive dealmakers, including HNA, the property-to-film conglomerate Dalian Wanda and Anbang Insurance Group.
The stringent regulatory scrutiny of overseas deals, after Chinese companies spent a record $221 billion on assets overseas in 2016, will not only cool new dealmaking but also impede the closing of some of the pending transactions, according to three bankers in Hong Kong involved in mergers and acquisition.
In the case of HNA, one of its units that specializes in air travel, tourism, and hospitality management, HNA Tourism, said in April 2016 that it had agreed to buy ICE, one of the world's largest foreign exchange retailers, as part of a European investment spree aimed at expanding its business. (reut.rs/2vhtOzi)
The deal was expected to be completed in April this year, but HNA Tourism has been facing roadblocks for months in obtaining Chinese regulatory approval to move capital offshore to finance the relatively small takeover, said one person with direct knowledge of the matter.
“There was no capital outflow restrictions when the deal was announced,” a second source said, referring to the ICE deal. But, the source added, “HNA had to file for regulatory approval when the capital control rules came out, which takes time.”
An acquisition transaction usually takes six months to a year to close. China’s largest overseas acquisition - ChemChina’s $43 billion purchase of Syngenta AG, took about a year and a half to clear all regulatory hurdles.
Smaller deals usually close more quickly than large ones.
But HNA, which last year completed a $6.5 billion purchase of a stake in Hilton Hotels, may need to wait till the end of this year to close the ICE transaction due to the capital controls, said the two sources.
In the other deal, HNA has postponed the mandatory tender offer for acquiring all outstanding shares in Sweden's Rezidor Hotel Group AB REZT.ST until September, according to two other people familiar with the deal and an announcement document from its unit HNA Sweden Hospitality Management AB.
The HNA unit announced a mandatory takeover bid for Rezidor in December, offering 34.86 Swedish crowns ($3.78) per share. That came after HNA Tourism bought 51 percent of Rezidor as part of a deal to buy Carlson Hotels Inc in April last year.
HNA Sweden has not yet obtained all “necessary regulatory, governmental or similar clearances, approvals and decisions” for the settlement of the tender offer, the group unit said in its official tender notice in June, reviewed by Reuters.
Two of the sources familiar with the Rezidor deal said the regulatory and government clearance mainly referred to HNA’s inability to take its capital outside China to fund the transaction.
In case HNA is not able to complete the tender offer for all the remaining outstanding shares of Rezidor, its holding of a little more than half of the Swedish hotel group would also be subject to review in line with local regulations, one of the sources said.
All the sources declined to be named as they were not authorized to discuss the deals.
HNA, HNA Tourism, ICE and the Swedish hotel group did not immediately respond to requests for comment.
With more than $100 billion in assets, HNA has signed about $50 billion in deals over the last two years, buying stakes in logistics firms, hotels and even Deutsche Bank DBKGn.DE. At least $8 billion worth of those deals are still pending, according to Thomson Reuters data.
One is an agreement signed in January by HNA’s U.S. unit to purchase a stake in hedge fund investor SkyBridge Capital. Woomi Yun, a SkyBridge spokeswoman, said Tuesday that the New York-based firm did not have any concerns about financing for the transaction. Representatives for HNA and SkyBridge both said on Monday that they expected the deal to be completed by the end of the summer. The sale is under review by the Committee on Foreign Investment in the United States (CFIUS).
HNA has recently pushed back against media reports that it faces mounting pressure from bankers and regulators, even as it announced a shareholding shake-up in a bid to quash concerns over its ownership.
Beijing is increasingly scrutinizing opaque corporate structures, excess debt and deals it sees as risky as it tries to control capital outflows and keep the economy stable.
That crackdown appears to have had ripple effects in recent days. On Tuesday, Anbang Insurance Group denied a Bloomberg report that it had been told by regulators in China to sell its overseas assets.
After a spate of successful deals worth over $30 billion, however, Anbang had begun running into trouble even before the detention in June of its chairman, Wu Xiaohui, failing to close on a handful of investments and facing criticism over its opaque shareholding structure.
Adding to the challenges at home, Shanghai Fosun Pharmaceutical Group's 600196.SS proposed $1.3 billion takeover of Gland Pharma, an Indian drugmaker, has also run into trouble with the Indian government privately raising objections, according to a source familiar with the matter. The source said the objections were partly because of concerns that the Chinese drugmaker was facing at home.
The chairman of Shanghai Fosun, Chen Qiyu, said in a filing to the Hong Kong stock exchange on Tuesday that India had not informed Gland Pharma of the result of its review of the acquisition.
The Hong Kong Monetary Authority has also been tightening scrutiny of HNA’s land acquisitions in Hong Kong as part of a broad probe into lenders’ exposure to the real estate sector, according to loan bankers in the territory.
The HKMA has been asking banks who have financed HNA’s real estate purchases to provide information such as its source of repayment and leverage ratio, loan bankers said.
Reporting by Julie Zhu, Sumeet Chatterjee and Kane Wu in Hong Kong; Additional reporting by Lawrence Delevingne in New York and Yan Jiang and Chien Mi Wong of Basis Point/LPC; Editing by Philip McClellan and Frances Kerry
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