HNA Group has RMB40b of credit lines for acquisitions in EU & US

HNA Group, the Chinese investor in aviation, shipping and hotels, said it has access to as much as 40 billion yuan ($6.3 billion) of credit lines to support acquisitions in Europe and the U.S. 
 
"HNA is ready," said Adam Tan, executive director of the Hainan province-backed company, which controls Hainan Airlines Co. and Hong Kong Airlines, in an Oct. 21 interview in Beijing. "When there's an opportunity, we'll go and grab it."

The company has this year agreed to investments in a shipping-container lessor, Spain's largest business-hotel chain, and a Turkish air-cargo carrier, as China encourages overseas deals to pare a reliance on low-wage manufacturing and imported raw materials. The nation's companies have announced 309 overseas deals this year, the sixth straight annual increase, according to Bloomberg data.

"HNA Group is a mysterious company," said Li Lei, a Beijing-based analyst at China Securities Co., who covers Hainan Air. "They has done a lot of deals to diversify their business, but outsiders have no idea about their focus or next move.”

The group wants to boost overseas assets to 40 percent of holdings from 10 percent within five years, Tan said. Its operating assets may climb fourfold to 1 trillion yuan over the same period, depending on economic growth, he said.

Stock-market Slump 
 
HNA, which was established in 2000, is interested in listed companies in the U.S. and Europe because they are financially transparent and easier to exit, Tan said, without naming specific targets. A stock-market slump has also reduced prices, he said.

"Some assets in Europe and the U.S. are too cheap," said Tan, a Harvard Business School graduate. "Valuations of some good companies have dropped below net asset value, which is unjustified."

By contrast, investments in China are less attractive because of market bubbles, including in real estate, he said.

HNA is waiting to hear whether it was successful in a bid for an airport unit being sold off by Hochtief AG (HOT), Tan said. The unit, which includes airports serving Hamburg, Sydney, Budapest and Athens, drew bids of more than 1 billion euros ($1.4 billion), four people familiar with the matter said in August.

The company expects to complete the purchase of 20 percent of Madrid-based NH Hoteles SA (NHH) this year after which it will help the hotel chain expand in China, Tan said. HNA this month agreed to pay 330 million euros for the stake following a price cut.

Container Lessor
 
In August, it agreed to buy container-lessor GE SeaCo for $1.05 billion in partnership with Bravia Capital. The company has also said that it has held preliminary discussions about bidding for luxury-hotel chain Amanresorts International Pte.

"I am not optimistic about HNA's aggressive overseas investment plan as risks are high," said Li. "It is hard to tell how long the crisis in Europe will last and when is the bottom. If HNA buys too early, it may not have enough capital to run the acquired business." 
 
The company has credit lines from state-backed banks including China Development Bank Corp., Agricultural Bank of China Ltd. (1288) and Industrial & Commercial Bank of China Ltd., Tan said.

In China, HNA has led efforts by the local government to grow Hainan's tourism industry. The province is a tropical island, about twice the size of Hawaii, off the coast of southern China.

HNA's investments include both of Hainan's two main airports, hotels, a business-jet operator and a car-rental company. It also owns an aircraft lessor, a shipping line, real estate projects across China and a department-store chain.

Overseas investments announced by Chinese companies this year include China Investment Corp.'s proposed purchase of a 2.3 billion euro stake in GDF Suez SA's production and exploration business, and China Petrochemical Corp.'s agreement to buy Daylight Energy Ltd. for about C$2.9 billion ($2.9 billion).

The announced investments total $41.3 billion, compared with $69.9 billion for the whole of 2010.