Chinese Company Faces Debt for its Rise to Power and Deal Making

A Chinese company has risen to power and become a globally recognized, major player in deal-making all around the world. This company, called HNA group, had made purchases and investments in big names including the Hilton Hotels, Deutsche Bank and Virgin Australia, spending up to $50 billion. They have been awarded by Stephan Schwarzian at a gala in NYC earlier this year.

HNA’s founder, Chen Feng, described the company’s effort as “bringing the world closer together through deepened U.S. market ties.” Despite its rise to power and accomplishment in the past few years, the company is facing its dues, as HNA is now facing a debt of $90 billion, a third of which is due this year. The steep amount of the debt is leading to concerns and doubt of investors with the company’s ability to pay back its debt.

Thomas A. Clare, a lawyer for HNA, has responded that the business had always been able to meet its obligations, dismissing the concerns regarding the debt. In fact, HNA has been thinking and moving fast to counter the debt, indicating earlier this week that it would sell a part of the trust of the Hilton Hotels, which is worth $1.4 billion. It is also hoping to gain pledging credit from the Chinese government, a move that is not uncommon in China. Besides these measures of unloading properties, HNA is also intending to use some of its assets as collateral to raise cash from lenders.

However, Xi JinPing, the Chinese president, has tightened the government’s control on the economy by imposing further pressure on Chinese companies, who had a history of operation on huge debt while continuing to make deals. Two weeago,o , Anyang Insurance Group had been seized by Chinese authorities for its global deal making based on opaque investment products. Increasing numbers of large companies that have long been operating on growing debts are now steering its company towards safer approaches and sell off its properties.

HNA is facing the same pressure. The company has already paused its trading in a few listed units in China and Hong Kong and its stocks have plummeted since then. HNA has spent $140 million for advising fees on deals from big banks and the company has hired JPMorgan Chse earlier this year to help sell off its stake in NH Hotels.

The stakeholders in HNA’s fate are more than its investors and lenders, but also other businesses and workers around the world due to its immense sprawl. HNA’s properties include Ingram Micro, Swissport, Gategroup and many hotels across the globe. If it fails to pay off its debt, this would trigger the loss of jobs in thousands of its employees and the businesses under its wings.

While deals may seem easy to make at the moment, the hardship lies in what happens after the purchase and how to deal with the cash deficit of the firm. In need for a cheaper, more accessible source of funds, HNA has considered posting its shares of a few companies on the public market to raise quick cash.

The outcome of HNA will also influence China’s tightening policy on its economy and pressure on decreasing larger companies’ dependence on rising debts and risks. HNA’s sprawling ambition has won the company awards and recognitions, along with the bills. The stakeholders will be carefully watching its efforts in the next few weeks to pay off its debts.

Featured Image via Wikimedia