HNA turns M&A norms around again
Everyone used to want to be on the sell side; now they want to be on the buy side.
In recent months, there has been a new game in Hong Kong investment banking called ‘Distance yourself from HNA’. It is easy to play. On the way up, everyone wanted to advise HNA, the acquisitive-though-opaque Chinese conglomerate whose big holdings include stakes in everything from Deutsche Bank to Hainan Airlines and Hilton Worldwide. It was among the world’s most active investment companies from 2015 to early 2017 and therefore very much courted by western investment bankers.
Things started to change last year as concerns grew about debt levels and who actually owned the company. In July, Bank of America Merrill Lynch told its bankers to stop working on transactions with HNA Group (prompting the industry-wide retort that they probably weren’t in the running for any in the first place). Whether publicly or privately, others distancing themselves from HNA deals around this time included Goldman Sachs, Citigroup and Morgan Stanley. The game then took an unexpected twist when HNA told Reuters it had passed the compliance checks of several global banks, specifically naming JPMorgan, UBS, Credit Suisse and Nomura (but not, noticeably, Deutsche, despite HNA owning almost 10% of the bank’s stock at the time).
Euromoney understands that these institutions had no idea that HNA was going to make this sudden announcement; nor were they particularly thrilled that it did. None has commented publicly, but some are keen to stress that approvals are fluid and just because HNA may have passed a bank’s compliance checks on one deal does not mean it is indefinitely in the clear for more. So even banks that appear to have agreed to work with it are keen to give the impression that they are not, or at least not for ever.
Just lately, however, there has been a subtle shift, as it has become clear that HNA is a distressed seller with an awful lot to get off the books. The group was believed to face a shortfall of at least Rmb15 billion ($2.4 billion) on its interest repayments in the first quarter of 2018 alone. Once again, HNA is the talk of Hong Kong investment banking advisory – except this time people only want to advise the companies buying things from it. This is something of a turnaround. Ever since the so-called ‘random Chinese buyer’ (patron saint: Anbang) began to appear in international M&A, banks have said that by far the best position to be in is the sell-side adviser, because you know you are going to get a fee; work on the buy side and you run the real risk of a client who isn’t yours (very likely a random Chinese buyer) trumping you and winning the asset instead. And then you don’t get paid.
Now, however, everything is changing. Chinese companies are no longer permitted to acquire internationally like they used to and HNA, the most acquisitive of them all, has turned forced seller. So now the mandate of choice is to represent someone who might buy an asset from it at a favourable rate. Already there has been some action. In February, HNA confirmed it was selling two sites around Hong Kong’s old Kai Tak airport to Henderson Land Development. And we know that UBS’s derivatives team is keeping busy with HNA, conducting option trades as part of a series of transactions to reduce HNA’s stake in Deutsche Bank from 9.8% to 8.8%, while taking out collar options to limit gains and losses on the remainder of its holding. UBS and ICBC Standard Bank were also lenders on a margin loan to HNA, apparently now repaid. However, UBS says it is not the sell-side adviser to HNA on its asset sales.
So who is? Whoever it is, they are not broadcasting it. Many assume it is Deutsche because of the shareholding link, but Deutsche, which declines to comment, has generally distanced itself from its big shareholder; chief executive John Cryan avoided meeting Adam Tan, HNA’s chief executive, until November 2017. It seems increasingly likely there is a place for a mainland house like CICC where international firms fear to tread. But thanks to HNA, the buy-side mandate is back in fashion.