China’s wounded rhinos


The New York Times reports that cash-strapped Chinese aviation and shipping conglomerate HNA Group is appealing to its own employees for financial assistance to cope with the estimated $90 billion in debt the group rang up in its high-profile global spending spree. In January, according to the Times, HNA Group companies bombarded employees with a variety of e-mail pitches promising high rates of interest in exchange for short-term loans. The Times says it reviewed “dozens” of different offerings. One touted 8.5% for workers lending $1,500. Another proffered a return of up to 40% to employees willing to lend $15,000.

An HNA lawyer said the offers were part of an incentive program for employees and not intended to provide financing for the conglomerate. But none of the appeals appear to have offered employees equity in HNA companies. Anne Stevenson-Yang, co-founder of J Capital Research, called the employee appeals a “desperation measure when companies really have no other source of financing and they are stuck.”

Until recently, HNA, headquartered on China’s southern Hainan Island, was among the Middle Kingdom’s brashest overseas investors. Its global acquisitions included Minnesota-based Carlson Hotels, owner of the Radisson and Park Plaza Hotels; a 25% stake in Hilton Worldwide Holdings; a 9.9% stake in Deutsche Bank; the aircraft leasing arm of the New York financial firm CIT Group; and Ingram Micro, the Irvine-based company that is the world’s largest distributor of technology products. In January 2017, HNA Capital, one of the group’s subsidiaries, pledged $200 million for a majority stake in SkyBridge Capital, the New York hedge fund of Anthony Scaramucci, facilitating Scaramucci’s colorful, albeit brief, stint as an official in the Trump White House.

HNA’s buying binge came to an abrupt halt last summer after the Chinese government identified overseas investments by HNA and several other Chinese companies as posing a systemic risk to China’s economy. An unsigned commentary in the Peoples’ Daily, borrowing from metaphors popularized by Nassim Nicholas Taleb and American policy analyst Michele Wucker, argued that China’s acquisitive conglomerates weren’t “black swans” (high-impact risks that are highly improbable and therefore almost impossible to predict) but “gray rhinos”—high-impact risks that were highly probable but widely ignored. China’s giant state-owned banks, the major source of the conglomerates’ funding, began reining in lines of credit.

Over the past two months, HNA has shown signs of severe financial distress. The group, which ranked 170 on last year’s Fortune Global 500 list, has total assets of about $180 billion, and generates substantial operating income. But it is clearly struggling keep ahead of creditors. The Financial Times reports that $20 billion in dollar-denominated bonds issued by HNA and its subsidiaries are due to mature in 2018 or 2019; yields on three of those bonds have spiked, doubling this month to more than 18%. In December, the group borrowed against its Hilton shares three different times to increase capital, according to the Wall Street JournalBloomberg says HNA group has been trying to sell assets including property in Sydney and Hong Kong. A Chinese bank sought to freeze HNA assets after discovering that the company used the same shares as collateral for multiple loans. Since November, seven of HNA Group’s 16 listed subsidiaries have suspended trading of their shares on exchanges in Shenzhen and Shanghai pending major announcements.

In a January interview with Reuters, HNA Group chairman Chen Feng expressed confidence HNA will “move past these difficulties and maintain sustained, healthy and stable development.” Perhaps. For now, though, nursing this wounded rhino back to strength looks like a daunting and perilous task.

Ant’s nest. Alibaba has taken a 33% stake in financial affiliate Ant Financial, which operates popular online payment platform Alipay. Alibaba will acquire the newly-issued shares from Ant Financial in exchange for certain intellectual property rights, putting an end to the profit-sharing arrangement in place since the company was spun off in 2014. The current 76.4% stake owned by Alibaba management and employees and 23.6% by domestic China investors will drop to 51.2 and 15.8% respectively under the new structure. Ant may also be hoping that partial ownership by US-listed Alibaba will make it easier to make US acquisitions, such as their previously quashed bid for MoneyGram. Financial Times

Credit cut. Tencent has pulled its credit-scoring system a day after its launch on Tuesday, after China’s central bank credit bureau expressed its concerns over misuse of users’ personal credit information. The service assigns a score to Chinese nationals who use Tencent’s social media apps WeChat or QQ based on transaction data on their mobile transactions and social networks. Archrival Alibaba was the first in China to pilot their Sesame Credit in 2015, was similarly reprimanded by the regulators in January for automatically enrolling users in its credit scoring program. Caixin  

Uber wants in. Uber has launched its own dock-less bike-sharing service, akin to the ones Chinese players Mobike and Ofo have rolled out in China and beyond. Uber is piloting the scheme among a select group of users in San Francisco in partnership with Jump Bikes, which runs electric bike-share schemes around the U.S., Uber said in a blog post this week. Quartz 

Big dreams for Xiaomi. Chinese phone maker Xiaomi is planning an IPO in Hong Kong, under the territory’s reformed rules allowing companies to issue a two-tiered share structure with different voting rights. The listing will likely take place in September, when the reforms are in place, and Xiaomi would like to be the first company to list under the new IPO rules, according to a source. South China Morning Post 

Search me. Beijing’s Bytedance Telecommunications Co., who runs news aggregator app Toutiao, is suing  China’s largest search engine Baidu for unfair competition. Bytedance claims that Baidu deliberately places negative news about Toutiao in top search results. Sixth Tone 



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