April 6, 2018 / 5:05 AM / a year ago

Breakingviews - HNA takes circuitous route to streamlining

FILE PHOTO: A worker installs rubber onto the windows of the doors along a production line at a truck factory of Anhui Jianghuai Automobile Co. Ltd (JAC Motors) in Hefei, Anhui province May 5, 2014. REUTERS/Stringer/File Photo

HONG KONG (Reuters Breakingviews) - HNA Group is restructuring in a rather roundabout way. The Chinese conglomerate already has offloaded stakes in two Hilton Worldwide spinoffs for a combined $2.4 billion, as part of a streamlining programme that includes publicly floating businesses and shedding real estate. Now it has put its 26 percent holding in the U.S. hotelier itself, worth roughly $6.4 billion, on the block, too.

After spending roughly $50 billion overseas in barely two years, the conglomerate hit trouble with regulators at home and abroad, and has shown financial strain. Yields on HNA bonds have soared, and in January, Reuters said it had told creditors it faced a potential $2.4 billion liquidity shortfall that quarter.

Checking out of Hilton and its sister companies is therefore understandable. These businesses are already listed, making it easier to agree on a price and move swiftly. Such factors have been sticking points elsewhere, as with HNA’s aborted listing of airline caterer Gategroup.

Selling the lodging investments also make sense in other ways. They’re minority stakes, meaning HNA had less influence over them and fewer opportunities to ensure the businesses worked closely with its other operations. What’s more, the deals have worked out well, given that HNA originally paid $6.5 billion for what turned into the three stakes, after Hilton reorganised itself. Leverage should greatly amplify HNA’s return, since it originally borrowed $3 billion, and later increased the sum to $3.5 billion.

Strategically speaking, the picture is murkier. Like other Chinese deal machines, HNA has dabbled in all kinds of industries. It began with an airline, however, and is built around travel and logistics. That makes it curious to quit a leading hotel group while keeping major investments in Western financial services, for example.

These interests include stakes in Deutsche Bank and OM Asset Management, and a pending acquisition of SkyBridge Capital, Anthony Scaramucci’s hedge fund-investing business. Financially, the time might not be right to sell. There may be technical constraints on HNA, too.

Ultimately, though, the company ought to be focusing on doing fewer things, better. Sharpening its attention at home could go down well in Beijing, since some of the official pressure on acquisitive conglomerates reflects concerns that Chinese capital is being squandered on foreign trophies. The choices so far suggest that a clear HNA blueprint may not be fully sketched. 


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