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Companies

China's HNA speeds up asset sales in 'return to roots'

Hong Kong Express exit marks latest move by debt-laden group to consolidate

HNA had expanded aggressively through overseas acquisitions.   © Reuters

HONG KONG -- Chinese conglomerate HNA Group is unloading more assets as it refocuses its business portfolio following an overseas buying spree that left it overextended.

The company, whose operations range from airlines to logistics to real estate, has sold around $45.2 billion in assets since last year, including stakes in Germany's Deutsche Bank and the U.S.-based Hilton hotel chain.

On Wednesday it announced the sale of its Hong Kong Express budget airline to Cathay Pacific Airways, and it plans to shed a Hong Kong real estate investment company as well.

At last week's Boao Forum for Asia held in the southern Chinese province of Hainan, HNA co-founder and Chairman Chen Feng told reporters that the group must push ahead with its asset disposals to raise cash and return to its roots. HNA will focus on its core aviation business and get rid of noncore operations, he said.

HNA spelled out those businesses -- aviation, tourism, logistics and a few others -- last September. The key to its turnaround is aviation, it now says.

But even if the asset sales give it some breathing room, HNA faces a tough road ahead as the Chinese economy slows.

Since the start of 2019, the company has stepped up the pace of its disposals, selling off its last plot of land at Hong Kong's former Kai Tak Airport.

On Wednesday, the conglomerate announced that it had completed the sale of Hong Kong International Construction Investment Management Group to Blackstone Group, an American private equity firm. HNA is also said to be considering selling its Hong Kong Airlines unit.

The divestments are a stunning reversal of fortune for a company that until recently was seen as the epitome of a new breed of aggressive Chinese companies eager to spread their wings abroad. HNA carried out $61 billion worth acquisitions between 2015 and 2017.

HNA Group Chairman Chen Feng speaks in Boao, Hainan province.   © Reuters

In 2016, HNA alone accounted for 13% of all overseas acquisitions by Chinese companies. From 2015 to 2017 the company racked up $45.7 billion in debt, mostly in the form of leveraged loans to companies with poor credit ratings. Now it is retrenching, perhaps even more quickly than it expanded.

HNA got its start in 1989 as Hainan Province Airlines. Previously owned by the Hainan provincial government, it later went private. Airlines remain central to HNA's business. As of 2018, it operated 2,600 routes through investments in 18 air carriers.

The company later diversified into hotels, real estate, finance and other industries. Its listed subsidiaries include Hainan Airlines and IT services company HNA Technology. According to its website, HNA had assets totaling $230 billion and $100 billion in revenue in 2017.

Chen developed a taste for risk while working for Wang Qishan, China's current vice president, in the 1980s. Wang has a financial background, and under his influence Chen devised HNA's debt-heavy expansion strategy.

But by 2017, China's easy-money policy had shifted. The government began to question the wisdom of companies' big debts and tightened its grip on credit around midyear. For HNA in particular, things got harder in October when Wang stepped down from the senior leadership following the end of the Communist Party Congress. Financial institutions became much less willing to lend.

The unexpected death of Wang Jian, HNA's other founder, in July last year while traveling in France added to the company's woes.

HNA's debts total $170 billion, according to QUICK FactSet and U.S. research specialist Dealogic. This year $3.9 billion of that will fall due.

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