HNA Group withdraws from deal to buy 20% stake in debt-laden NH Hoteles

Shares in NH Hoteles tumbled by more than 10 per cent on Tuesday after a Chinese state-backed company withdrew from a deal to buy a stake in the indebted Spanish hotel chain that is facing crunch negotiations with its lenders.

NH, Spain's largest business hotel operator by locations, said that HNA Group, a tourism group controlled by the Hainan province in China and parent of the Shanghai-listed Hainan Airlines, had backed out of the deal, announced in May, to buy 20 per cent of NH due to "volatility and current financial uncertainty".  
HNA's exit from the deal will leave NH struggling under net debts of more than €1bn and a ratio of net debt to earnings before interest, taxation, amortisation and depreciation of 6.5.

NH had already in October cut the price on the stake sale by 24 per cent to €5.35 a share, or €329.9m, down from €7 a share in May, as it was engaged in talks with its banks to refinance over next year.

"The cancellation of the agreement leaves NH in a highly complex situation," said analysts at Mirabaud, who said it would have to either increase asset sales in difficult market conditions or issue equity or convertible bonds while it had a depressed share price.

HNA is a sprawling Chinese conglomerate with a large logistics division, several airlines, a property arm, hotels and banks. The NH Hoteles deal was intended to be part of its strategy to build a global footprint.

But after going on a spending spree over the past year, including buying General Electric’s container leasing business, at least one part of HNA ran into financial trouble. Grand China Logistics, its cargo unit, was embroiled in a dispute with international shipowners that said they were owed money. Grand China vowed last month to clear those debts and said it would limit the expansion of its fleet.

Spain's hotel industry has struggled during the financial crisis as a drop in tourism and a fall-off in business travel and conferences has left occupancy rates low, in spite of a pick-up over the summer.

NH Hoteles said it would continue discussions with HNA over a possible agreement about the development of hotels in China and selling flights and travel booking services run by the Chinese group to the hotel chain's customers.

The Spanish company added that it would receive a break fee of $15m from HNA for its withdrawal from the deal.

Analysts have doubted that other large shareholders in NH would either be willing or able to support a large capital increase to erase its debt.

Hesperia, a rival hotel chain that fell into a long-running dispute with NH after becoming its largest shareholder before calling a truce in 2009 and taking a seat on its board, will remain undiluted after the deal's failure, leaving it with 25 per cent of NH’s share capital.