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HNA faces multiple setbacks in overseas expansion

Dubious shareholding structure held banks back from dealmaking

HONG KONG -- At least three of Hainan-based HNA Group's outbound deals are in limbo as banks turn cautious against the acquisitive company that has failed to demystify its shareholding structure and financial standing.

The listing of its real estate investment trust, HNA Commercial REIT, on the Singapore Exchange was derailed after Bank of America Merrill Lynch withdrew from its role as adviser. HNA Group has come under intense scrutiny due to its opaque shareholding structure and worries over its risk exposure.

With planned completion by the end of July, the deal -- cashing in on five properties in Australia, the U.K. and Singapore -- was poised to become the city state's largest listing this year with an estimated issue size of 775 million Singapore dollars ($571.03 million).

Shenzhen-listed HNA Investment Group would have become the controlling shareholder after the float. It was due to subscribe to at least 35% of the deal through Singapore-registered Hairong Juhong under a Hong Kong-registered financing vehicle that also has a 75% stake in HNA-A EP REIT Management that oversees the portfolio to be listed.

Hong Kong-listed affiliate HNA Holding Group is also under greater financial scrutiny from regional lenders in a takeover bid for CWT, a Singapore-based logistics operator that is also involved in commodity trading. Malayan Banking and RHB Bank, according to a Bloomberg report, are studying HNA's leverage ratios in assessing the size of loans they are willing to extend for the acquisition.

The due diligence means more time will be needed to finalize any financing arrangement for the S$1.4 billion transaction announced in April. This despite the fact the company has gained approval from anti-trust bodies in mainland China and other regions where CWT operates for the merger, according to a filing on June 30.

With an offer of a 13% premium over CWT's last traded price, HNA had planned to delist the company from the Singapore bourse.

In the U.S., the company is also facing problems. Its venture there was scrapped due to regulatory challenges.

The investments, worth of $416 million in the initial stage for a 35% stake in Los Angeles-based Global Eagle Entertainment, had failed to obtain clearance from the Committee on Foreign Investment in the U.S. by the date required by the agreement, according to the Nasdaq-listed company on July 25.

Announced in November, the deal was meant to beef up HNA's Beijing Shareco Technologies, also an in-flight entertainment and connectivity provider, listed on China's over-the-counter National Equities Exchange and Quotations. Alongside Barclays, Bank of America Merrill Lynch is also acting as financial adviser to Global Eagle.

The Wall Street bank's high-profile avoidance of HNA has prompted the privately owned company to disclose its shareholding structure for the first time last week. New York-based Hainan Cihang Charity Foundation was unveiled as HNA's single largest shareholder with a 29.5% stake, displacing former owner Guan Jun and creating more riddles over HNA's ownership structure.

Yet to commence operations, the offshore nonprofit entity created in December is now going through the process to be formally registered as a charity, according to New York Attorney General Eric Schneiderman who has requested HNA file more details bu end-August.

Established as the international arm of Hainan Province Cihang Foundation, another philanthropic organization created in 2010 with a 20 million yuan ($2.96 million) donation from HNA Group, the two entities will altogether have 52.25% interest in the sprawling conglomerate.

The biggest private dealmaker from China in 2016, HNA's overseas shopping spree in the past few years has topped $40 billion, including huge stakes in Hilton Hotel and Deutsche Bank. It also took over Ingram Micro, the largest distributor of technology products, and created the world's third largest aircraft leasing consortium by buying Dublin's Avolon and New York's CIT.

Dalian Wanda, Fosun International, Anbang Insurance and HNA are all under inspection by China Banking Regulatory Commission for raising potentially unsustainable debt to back aggressive overseas investments. HNA has slowed down on acquisitions this year.

"Given our assessment of the overall environment and landscape of opportunities, HNA Group signaled several months ago that our investment pace was likely to moderate somewhat this year relative to 2016, but we continue to take a disciplined approach to actively identifying, evaluating and pursuing strategic acquisitions across our core areas of focus," HNA Group said in an emailed statement.

"We continue to execute on compelling opportunities, such as the recently announced investment in Rio de Janeiro's Galeao International Airport," it said.

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