Chinese HNA leaves Deutsche Bank stake under pressure from Beijing

The conglomerate is in talks to sell Californian technology distributor Ingram Micro Inc. – which it bought for $ 6 billion in 2016 – and the Zurich cargo handler Swissport International Ltd. According to some, it also plans to sell its stakes in dozens of Chinese banks, trusts and insurance companies.

Taking into account its 7.6% stake in Germany's Deutsche Bank, which it plans to phase out over the next 18 months, assets that HNA wants to lose are currently valued at more than $ 10 billion, according to Wall Street Journal calculations. They track announced or completed asset sales for approximately $ 20 billion.

A spokesman for the HNA declined to comment on Deutsche Bank and details of other planned asset sales. A spokeswoman for Deutsche Bank declined to comment.

Deutsche Bank shares fell on the news. In morning trading in Frankfurt, equities fell by more than 1%, then partially recovered and have recently fallen by around 0.6%.

The new wave of planned divestment follows a recent Beijing mandate to have HNA return to its core business of operating Chinese airlines, according to people familiar with the company. The plans were in place before the co-founder and former HNA chairman Wang Jian died during a trip to France in July, according to the people. Chen Feng, the other founder of HNA who is now sole president, continues his strategy, they added.

"We are committed to streamlining our strategy to focus on our core business in aviation, tourism and logistics, improve our operations and strengthen our balance sheet," said a spokesperson. of the HNA.

He noted that the group had increased revenue and profitability in the first half of this year and had reduced its debt. "We will continue to implement our strategy to make HNA a stronger, more focused company to support our long-term growth," added the spokesperson.

The society, which started as

Hainan Airlines

in 1993, has a dozen airlines in China. Over the last few years, HNA has accumulated significant debt on its global acquisition, putting pressure on the company's finances and frightening some of its bond investors.

HNA and other large private conglomerates in the past year have sought to reduce non-core investment and reduce debt in accordance with Beijing guidelines.

HNA's efforts to unload assets show that the group remains under pressure to repay the debt, which stood at 657.4 billion yuan ($ 96.12 billion) at the end of June, down 10% compared to the previous six months.

China Development Bank Corp., one of HNA's largest creditors, has set up a special team at the company's headquarters in Haikou, according to people close to the situation. China Development Bank did not respond to a request for comment.

According to one of those familiar with the subject, HNA is expected to reduce its assets by about one-third to about 800 billion yuan. The group's assets stood at 1,000 trillion yuan at the end of June, according to its latest financial statements.

Until now, most assets sold by HNA have generated profits, such as the recent sale of its shares in three companies that own Hilton hotels and other resorts around the world. These transactions yielded about $ 2 billion to HNA.

The group will probably leave its stake in Deutsche Bank at a loss, according to someone familiar with the subject. The shares of the German bank have lost about 40% of their value since the beginning of 2017, when HNA revealed that it was a major shareholder.

At one point, HNA held almost 10% of Deutsche Bank and financed its participation by using derivative contracts with banks and financing of more than $ 2.8 billion. Its stake was reduced to 7.6% as some of these contracts expired and lenders sold shares to recover their loans.

HNA expects that its stake in Deutsche Bank will be gradually reduced to nil as the number of derivative contracts increases, a person familiar with the subject said. Its remaining participation is currently valued at approximately $ 1.8 billion.

HNA helped anchor Deutsche Bank's $ 8.5 billion rise in early 2017, but has since been a source of internal conflict and uncertainty for the lender's executives and investors. Last year, John Cryan, then CEO of Deutsche Bank, refused to meet with HNA, highlighting Deutsche Bank President Paul Achleitner, who had courted the Chinese investor. Mr. Cryan considered the structure of HNA's investment in Deutsche Bank to be speculative and risky for other investors.

Mr. Cryan finally met with HNA CEO Adam Tan in November 2017. Mr. Cryan was removed from his position as CEO of Deutsche Bank earlier this year.

To accelerate the pace of other HNA asset sales, people familiar with the company's approach say they choose not to subject some of its recently announced divestments to the US Foreign Investment Commission. takeover for reasons of national security.

HNA and its counterparts are not required to comply with Cfius' current rules, said these people, and waiting for such approval may take a year or more. Submitting transactions to Cfius is a voluntary process for companies.

A recent deal that Cfius was not aware of is HNA's sale of its stake in Radisson Hotel Group to a consortium led by the Shanghai-based Jin Jiang International Holdings Co., according to familiar people. This agreement should be concluded by the end of the year, according to the companies. Radisson and Jin Jiang spokespeople declined to comment.

A spokesman for HNA declined to comment on the deal and said the company "fully complies and cooperates with regulators in all countries where it operates". A spokesman for the Treasury declined to comment.

Some people familiar with the transaction say the deal does not need Cfius approval. Others say that the presence of some Radisson hotels near US military bases could trigger a monitoring of the transaction. HNA did not seek Cfius' approval for the acquisition of the owner of the Radisson chain in 2016, said people familiar with this earlier transaction.

HNA had abandoned plans to acquire US companies after failing to obtain approval from Cfius. The panel told HNA a few months ago that it was to sell its controlling stake in a Manhattan skyscraper whose tenants include a police station that protects the Trump Tower. HNA bought 90% of the building in 2016 before the election of President Donald Trump.

-Jenny Strasburg contributed to this article.

Write to Julie Steinberg at [email protected] and Stella Yifan Xie at [email protected]