Photograph by World Travel & Tourism Council,via Wikimedia Commons. Accessed on 11.05.17
With humble beginnings as a small airline company in southern China, over the past two decades HNA Group has experienced exponential growth. On the 3rd of March 2017, it was announced that the group has become the largest shareholder of one of Europe’s most well-known financial institutions – Deutsche Bank.
“Nobody can truly understand our group”, HNA Group’s Chairman Chen Feng once asserted. Indeed, the astonishing growth trajectory of the group is not only perplexing to many Western businessman, but also to observers from within China.
However, for those who are close to the senior political circle of the Chinese Communist Party (CCP), the rise of HNA Group is perhaps not so surprising at all. As such, investors looking to tap the rewards on offer in China’s markets would benefit from understanding the proclivities and rise of an entity like the HNA Group.
The U.S. $1 Million to U.S. $100 Billion Trajectory
HNA Group – whose portfolio is estimated to be U.S. $100 billion today – began as Hainan Airlines in China’s southern province of Hainan in 1993. It was created by Chen Feng, who managed to raise just over U.S. $1 million, with the help of the Hainan local government and a group of private investors to capitalise his company (The Economist, 12.04.2017).
Two years later, pressured by a lack of funds, Chen flew to New York to solicit investment; he successfully persuaded U.S. magnate George Soros to inject another U.S. $25 million into the company, at which point HNA Group truly began to take off (Straits Times, 16.05.2016).
In the following years, HNA Group began to grow rapidly – mostly through global acquisitions. Over the last three years, it has spent U.S. $40 billion on acquisitions alone (The Economist, 2017.04.12). For instance, in early October 2016, the group agreed to pay U.S. $10 billion - through its subsidiary Avolon Holdings Ltd - to purchase the aircraft-leasing business of a New York-based financial company, CIT Group Inc. (Reuters, 07.10.2016). In the same month, HNA Group bought 25% of Hilton Worldwide Holdings Inc. from Blackstone Group for U.S. $6.5 billion.
The group’s seemingly insatiable hunger for acquisitions is continuing this year.
In early April, HNA Group bid almost U.S. $1 billion for a listed Singaporean logistics company CWT, which sent the share price of the latter soaring over 9% (Nikkei Asian Review, 11.04.2017). Later in the month, it acquired a 16.79% stake in a Swiss airport duty free shop operator Dufry AG (China Money Network, 27.04.2017). More recently, on the 3rd of May 2017, Cruise Industry News reported that the group is planning to acquire a “major” cruise line whose name has so far not been disclosed (Skift, 03.05.2017).
Most of the Group’s acquisitions are made within its main industries of operation, including logistics, hospitality and tourism. However, a growing number of its recent acquisitions appear to be moving further and further away from its core businesses. This has raised some eyebrows, and suggests that HNA’s ambitions may run into trouble depending on which industry, whose dominant market share, it encroaches upon during its continued expansion.