HNA’s $20b buying spree brings a lot of credit

Will any company that’s not had a takeover bid from China’s HNA Group over the past year please stand up?

The offer Wednesday to buy out remaining minority shareholders in Tysan, a Hong Kong-based foundation engineer, brings total acquisition spending by the owner of Hainan Airlines and its associates to almost $20 billion over the last 12 months.

Little more than a week ago, HNA offered $1.5 billion in cash for the Swiss airline catering business Gategroup, joining the cargo handler Swissport, which it agreed to buy last July for $2.8 billion. The company has purchased a $420 million stake in Brazil’s third-largest airline; $500 million-worth of the travel-booking website Tuniu; and a holding in Uber China. Associated companies Bohai Leasing and Tianjin Tianhai have spent $7.6 billion on an aircraft-leasing firm, Avolon, and $6 billion on the electronics distributor Ingram Micro.

HNA also joined in the bidding for companies including the hotel chains Carlson Rezidor and Starwood, as well as London City Airport, according to Bloomberg News reports. For good measure, Sky News of the U.K. reported last week that the Chinese company was looking to acquire a stake in Monarch Airlines.

That’s quite a spree for a company whose main operating asset is one of the world’s most-indebted airlines.

How is all this going to be paid for? HNA is closely held and controlled by the provincial government of Hainan Island, so it doesn’t routinely publish full financial accounts. But you can get a pretty detailed picture from the prospectus for the 2 billion yuan ($309 million) of 7 percent bonds the company sold earlier this month.

In the 15 quarters through Sept. 30, HNA had operating cash flows of about 50 billion yuan. A further 116 billion yuan was raised from financing, and 135 billion yuan was spent on investments.

Operating activities amounted to only about two-thirds of earnings, with the remainder coming from non-operating revenue, such as dividends paid on investments and asset revaluations

None of this necessarily matters as long as HNA has the earnings and liquidity to meet its debt payments promptly, and the operating performance to deliver rising profits. Things don’t look too hot on that front, though. Take a look at HNA’s quick ratio and interest cover, which gauge its ability to meet short-term liabilities and pay its interest out of income.

Both are around or below their respective safety levels of 1 and 1.5 times. Return on assets hasn’t cracked above 1 percent throughout the period, suggesting the group would have been better off sticking its money in the bank.

As we’ve seen with Anbang Insurance’s recent shopping spree for offshore hotels and financial businesses, the usual financial constraints often don’t apply when it comes to well-connected Chinese companies following Beijing’s push to invest globally. So there’s no reason to look a gift horse in the mouth if HNA turns up at your headquarters waving a checkbook. But it might be as well to ask for cash.

Also read:

China: HNA’s M&A spree continues with $1.5b purchase of Swiss Gategroup

Chinese conglomerate HNA to buy controlling stake in Tysan for $340m

Bloomberg

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.