HNA, China's Buyout King, Struggles To Sweat Off The Debt

After a global acquisition binge, the Chinese conglomerate found that its earnings didn’t cover its hefty debt payments

- Matthew Campbell and Prudence Ho

As HNA Group Co. rose from provincial obscurity to becoming perhaps China’s most acquisitive global company, its executives made no secret of their desire to play in the big leagues. It appears they got their wish—just not in the way they wanted.

An annual report released in late April revealed that HNA spent more on interest than any non-financial company in Asia last year, a $5 billion bill that represented a more than 50 percent increase from the year before. A sprawling conglomerate with roots in a middling regional airline that was founded on China’s sleepy, tropical Hainan Island, HNA carried a total of $94 billion in debt at the end of 2017, a hangover from a dizzying global acquisition spree that made it the proud owner of a huge trove of trophy real estate and blue-chip corporate stakes.

The figures are a stark illustration of the potential peril faced by HNA, which as recently as a year ago was feeling confident enough to fete its co-founder Chen Feng with a birthday bash at Paris’s Petit Palais—just after becoming the largest shareholder in Deutsche Bank AG, with a stake then worth €3.4 billion ($4.1 billion). While a series of successful asset sales this year has given it breathing room, HNA still needs to unwind some of its splashiest purchases to reach a sustainable financial footing—a humiliating retreat for a company once eager to be seen on the grandest of stages.

“At the end of the day, it’s a cash-flow issue,” says Victor Shih, a professor of political economy at the University of California at San Diego, who studies the Chinese financial sector. “HNA actually had higher interest payments than net profit, which is very dangerous.”