July 24, 2017 / 10:25 AM / 4 months ago

After $50 billion deal spree, China's HNA moves to clear ownership concerns

LONDON (Reuters) - Chinese conglomerate HNA Group has 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.

FILE PHOTO: The HNA Group logo is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

The privately-owned group, which has entered into $50 billion of deals over the last two years, buying stakes in logistics firms, hotels and even Deutsche Bank, said on Monday it has set up a new charitable foundation to act as its single biggest stakeholder.

“I think we are operating our company legally, we have nothing to hide, and we are fine,” CEO Adam Tan told Reuters in a wide-ranging interview.

Tan said that HNA maintains a strong working relationship with its main Wall Street banks, which include JPMorgan, UBS and Morgan Stanley, and reports that some were scaling back credit to the group were not true.

He said Morgan Stanley had given HNA an unsecured $300 million loan just three weeks ago. Morgan Stanley declined to comment.

The only bank that has stopped working with HNA is Bank of America Merrill Lynch, Tan said, adding the bank had not dealt closely with HNA to begin with.

Tan characterized as routine a loan check by banks ordered last month by the China Banking Regulatory Commission (CBRC), adding this was not a major hindrance to the group’s business, given it had already been subject to regular CBRC scrutiny.

“I’ve been reviewed by them (the CBRC) for more than 10 years,” he said, adding it was just one of many regulators the company dealt with.

Beijing is putting more pressure on opaque corporate structures, excess debt and deals it sees as overly aggressive as it tries to control capital outflows and keep its economy on an even keel.

The banking regulator last month ordered a group of lenders to assess their exposure to offshore acquisitions by a handful of Chinese companies that have been on an overseas buying spree.

HNA, a leading shareholder in more than a dozen listed companies, has grown rapidly by buying overseas firms, more than quadrupling its assets to 1.2 trillion yuan ($177.5 billion) in 2014-16. Tan said revenues trebled in the first half of this year, and profits rose by 40 percent. He declined to elaborate.

NEW FOUNDATION

Tan confirmed details of a shareholding reorganization at HNA, which was reported earlier by Reuters.

HNA has come under pressure to provide greater clarity about who owns the conglomerate, following recent media reports and accusations by exiled billionaire Guo Wengui.

In June, HNA filed a defamation suit at New York State Supreme Court against Guo, who claimed that “officials in China’s Communist Party and their relatives are undisclosed shareholders” in the group.

Under the reshuffle, a newly created, New York-based, not-for-profit organization, Hainan Cihang Charity Foundation Inc, has become HNA’s single largest shareholder with a 29.5 percent stake.

Hainan Province Cihang Charity Foundation, a Haikou-based charity established by HNA in 2010 and capitalized by shares in 2013, continues to indirectly hold a 22.75 percent stake - meaning the combined foundation collectively accounts for more than 52 percent of the group’s issued stock.

A dozen senior executives hold the remainder of the group, with co-founders Chen Feng and Wang Jian having stakes of just below 15 percent each, Vice Chairman Chen Wenli a 3.95 percent stake, and three senior executives, including CEO Tan, each holding a 2.95 percent share.

As recently as a year ago, according to a 2016 filing, HNA said Bharat Bhise, CEO of Bravia Capital, and Guan Jun, a Beijing businessman, owned 17.4 percent and 12.35 percent respectively. That shareholding had been transferred to the foundation, Tan said. “Disclosing HNA Group’s ownership structure, even though we are a private company, provides more transparency, and we intend to update this information on an annual basis,” a spokesman said.

HNA described the foundation as furthering its philanthropic mission and maximising “efforts in corporate social responsibility”. HNA will exercise control and voting rights for the charities, Tan said, even as executives eventually move to transfer their shareholdings to the foundations.

DEUTSCHE, SKYBRIDGE

Tan said he had not had contact with the European Central Bank, which is considering a possible assessment of Deutsche Bank’s two largest shareholders, including the Qatari royal family.

HNA holds a stake of just under 10 percent in Deutsche.

“I think the German government clearly said it welcomes all ... kinds of investment,” he said. “Our investment is legal and is totally controlled by the regulatory process.”

Tan said HNA continues to move forward with deals, even as its acquisition spree slows. He pointed to the recent announcement it would buy a 60 percent equity stake in Rio de Janeiro international airport for $19 million.

Tan also said he was unaware of a timeline to close HNA Capital’s proposed buyout of SkyBridge Capital, the hedge fund platform founded by new White House communications director Anthony Scaramucci. The regulatory process may take more than a few weeks, he added.

Reporting by Matthew Miller and Rachel Armstrong. with additional reporting by Olivia Oran in NEW YORK; Editing by Ian Geoghegan

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