By Clay Chandler
February 3, 2018

The New York Times reports that cash-strapped Chinese aviation and shipping conglomerate HNA Group is appealing to its own employees for financial assistance to cope with the estimated $90 billion in debt the group rang up in its high-profile global spending spree. In January, according to the Times, HNA Group companies bombarded employees with a variety of e-mail pitches promising high rates of interest in exchange for short-term loans. The Times says it reviewed “dozens” of different offerings. One touted 8.5% for workers lending $1,500. Another proffered a return of up to 40% to employees willing to lend $15,000.

An HNA lawyer said the offers were part of an incentive program for employees and not intended to provide financing for the conglomerate. But none of the appeals appear to have offered employees equity in HNA companies. Anne Stevenson-Yang, co-founder of J Capital Research, called the employee appeals a “desperation measure when companies really have no other source of financing and they are stuck.”

Until recently, HNA, headquartered on China’s southern Hainan Island, was among the Middle Kingdom’s brashest overseas investors. Its global acquisitions included Minnesota-based Carlson Hotels, owner of the Radisson and Park Plaza Hotels; a 25% stake in Hilton Worldwide Holdings; a 9.9% stake in Deutsche Bank; the aircraft leasing arm of the New York financial firm CIT Group; and Ingram Micro, the Irvine-based company that is the world’s largest distributor of technology products. In January 2017, HNA Capital, one of the group’s subsidiaries, pledged $200 million for a majority stake in SkyBridge Capital, the New York hedge fund of Anthony Scaramucci, facilitating Scaramucci’s colorful, albeit brief, stint as an official in the Trump White House.

HNA’s buying binge came to an abrupt halt last summer after the Chinese government identified overseas investments by HNA and several other Chinese companies as posing a systemic risk to China’s economy. An unsigned commentary in the Peoples’ Daily, borrowing from metaphors popularized by Nassim Nicholas Taleb and American policy analyst Michele Wucker, argued that China’s acquisitive conglomerates weren’t “black swans” (high-impact risks that are highly improbable and therefore almost impossible to predict) but “gray rhinos”—high-impact risks that were highly probable but widely ignored. China’s giant state-owned banks, the major source of the conglomerates’ funding, began reining in lines of credit.

Over the past two months, HNA has shown signs of severe financial distress. The group, which ranked 170 on last year’s Fortune Global 500 list, has total assets of about $180 billion, and generates substantial operating income. But it is clearly struggling keep ahead of creditors. The Financial Times reports that $20 billion in dollar-denominated bonds issued by HNA and its subsidiaries are due to mature in 2018 or 2019; yields on three of those bonds have spiked, doubling this month to more than 18%. In December, the group borrowed against its Hilton shares three different times to increase capital, according to the Wall Street Journal. Bloomberg says HNA group has been trying to sell assets including property in Sydney and Hong Kong. A Chinese bank sought to freeze HNA assets after discovering that the company used the same shares as collateral for multiple loans. Since November, seven of HNA Group’s 16 listed subsidiaries have suspended trading of their shares on exchanges in Shenzhen and Shanghai pending major announcements.

In a January interview with Reuters, HNA Group chairman Chen Feng expressed confidence HNA will “move past these difficulties and maintain sustained, healthy and stable development.” Perhaps. For now, though, nursing this wounded rhino back to strength looks like a daunting and perilous task.

More China news below.

Clay Chandler


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