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Bank of America to halt deals with HNA amid debt concerns

Thursday, July 20, 2017 - 09:48

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Bank of America Corp has told investment bankers to stop working on transactions with HNA Group Co for now amid growing concerns about the acquisitive Chinese conglomerate's debt levels and ownership structure, according to people familiar with the matter.

[LONDON] Bank of America Corp has told investment bankers to stop working on transactions with HNA Group Co for now amid growing concerns about the acquisitive Chinese conglomerate's debt levels and ownership structure, according to people familiar with the matter.

The US investment bank joins other Wall Street firms, including Citigroup Inc and Morgan Stanley, that are largely steering clear of advising and financing the group on deals because they are unable to get internal approvals from "know your customer" committees, the people said, asking not to be identified because the information is private.

Senior officials at Bank of America's Merrill Lynch unit communicated internally last month that bankers shouldn't currently pitch for new acquisitions and fundraisings, the people said. Scrutiny of Chinese companies came into focus this week after people familiar with the matter said that China plans to cut off some funding for billionaire Wang Jianlin's Dalian Wanda Group Co, concluding the conglomerate breached restrictions for overseas investments.

An internal memo at Bank of America on holding off on deals with HNA for now went to fewer than five bankers who would be in a position to solicit business from the Chinese company, another person familiar with the matter said. The New York Times reported earlier that Bank of America had said in an internal e-mail that it had decided to remove itself from transactions with HNA.

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Bank of America had advised HNA on several attempted overseas acquisitions in the past few years, people said. The decision has affected deals the firm was working on for HNA, including the planned Singapore IPO of HNA Commercial REIT, two of the people said. Banks regularly reassess their comfort with potential clients, and their stance toward HNA could change, they said.

HNA hasn't done significant fee-paying business with Bank of America in recent months, one person with knowledge of the company said.

Citigroup's and Morgan Stanley's internal committees have also struggled to get sufficient clarity on the source of funds and ownership structures at HNA, leading those banks to avoid deals for some time, the people said. Still, some firms that shy away from the parent company are willing to do business with HNA units. Morgan Stanley was one of the banks that committed to a total US$8.5 billion in financing for Avolon, a business owned by one of HNA's listed arms, in its purchase of CIT Group Inc's airline leasing business last year.

A representative for HNA couldn't immediately comment. Representatives for Bank of America, Citigroup and Morgan Stanley declined to comment.

Support from Western banks has helped fuel a debt-backed buying spree by HNA, as it expanded from its home base on China's sunny Hainan island to add logistics, hotel and financial assets around the globe, including a US$6.5 billion deal to buy a stake in Hilton Worldwide Holdings Inc. announced last year. Chinese regulators have begun assessing local banks' loan exposure to HNA and are examining examples of acquisitions gone awry, people with knowledge of the matter have said.

JPMorgan, UBS Still, banks including JPMorgan Chase & Co and UBS Group AG have financed and advised on large HNA deals this year, notably the Hilton stake and the firm's acquisition of a 10 per cent stake in German lender Deutsche Bank AG.

Even UBS, which has historically helped HNA on multiple transactions, has started monitoring the conglomerate's debt levels more closely, separate people said. The Swiss bank is increasingly concerned that the Chinese company would struggle in the short term to complete large acquisitions, according to one of the people. UBS continues to do business with HNA, though its internal risk and compliance teams have begun asking more questions about dealings with the Chinese firm, another person said.

The pushback comes as HNA has been working to raise its profile in the West, hosting the French Open tennis tournament this year, a first for the firm. Executives including Chairman Li Xianhua and Chief Executive Officer Adam Tan kicked off with a gala celebration in Le Petit Palais in Paris that included politicians, bankers and celebrity chef Joel Robuchon.

HNA has recently told bankers it plans to slow the pace of its overseas dealmaking, according to one of the people with knowledge of the matter. The move comes as acquisitive Chinese companies are under increasing scrutiny at home.  The China Banking Regulatory Commission asked some banks to provide information on overseas loans made to Dalian Wanda, Anbang Insurance Group Co., HNA, Fosun International Ltd. and the Chinese owner of Italian soccer team AC Milan, people familiar with the matter said in June.

China is working to cut capital outflows that may be heaping pressure on the value of the yuan, and late last year moved to temporarily restrict the largest deals valued at US$10 billion or more, people familiar with the matter said at the time.

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