China’s HNA Group goes on a global shopping spree
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Apr 12th 2017 | SHANGHAI
NOW it is a conglomerate with more than $100bn-worth of assets around the world. But HNA Group started life as a small local airline. Chen Feng, the Chinese company’s founder, led a coalition including private investors and the government of Hainan, a southern province, to launch Hainan Airlines in 1993.
Despite some help from the local government, the upstart firm was an outsider then. The central government chose three big state-run airlines to receive favoured landing slots, lavish subsidies and other advantages. The scrappy Mr Chen was undeterred. With $25m in early funding from George Soros, an American billionaire, he carved out a profitable niche. Since then, HNA has grown quickly, mainly through acquisitions. It reported revenues of 600bn yuan ($90bn) last year. In 2016 it acquired a 25% stake in America’s Hilton Worldwide for $6.5bn and paid $10bn for the aircraft-leasing division of CIT Group, a New York-based financial firm.
This week it bid nearly $1bn for Singapore’s CWT, a logistics company.Most deals have been in industries adjacent to its core business, such as travel, tourism and logistics. But some recent purchases have raised eyebrows for being more distant. It spent $6bn last year on Ingram Micro, an information-technology outfit based in California. Money has also gone into Deutsche Bank. It is rumoured to be bidding for Forbes, an American magazine. Some people suspect that these deals chime with China’s industrial policy more than HNA’s own corporate logic.
Yet HNA is not a classic state-owned enterprise. The Hainan government retains a big stake in it, but HNA has traits that distinguish it from state-owned enterprises, which tend to be sclerotic and run by bureaucratic grey men.
It has adopted professional management practices. Mr Chen has trained his employees in Six Sigma, a management method popularised by Jack Welch, a former boss of General Electric, to eliminate waste; and in a financial methodology that scrutinises investments for economic value added. Hainan Airlines is considered the best Chinese airline. Mr Chen, a Buddhist scholar, has also imprinted traditional Chinese philosophies onto the company’s culture. When it takes over a firm he leads new executives in a recitation of HNA’s core values, which include “love and devotion”. HNA typically does not fire the top brass at firms it acquires, nor does it force big lay-offs.
Mr Chen certainly seems skilful at managing the Chinese authorities. HNA is presenting this week’s bid for CWT as part of President Xi Jinping’s “One Belt, One Road” geopolitical strategy, for example. It is clever to play the political card given that the state is tightening control of outbound investment, which could hamper the company’s style, notes a Chinese business expert. A clampdown on foreign deals by Chinese regulators, who are worried about capital outflows, has led to the cancellation of dozens of announced acquisitions by Chinese firms.
But HNA is having no trouble getting the money and approval to do lots of big deals—it has spent over $40bn on acquisitions in the past three years. Indeed, Mr Chen appears to have the advantages of a state firm, including cheap access to capital, without the disadvantages, such as officials telling him how to run his company, says a seasoned China hand. In this, he reckons, HNA is becoming “a lot like Huawei”, a telecoms-equipment firm. Mr Chen should be flattered by the comparison to one of the country’s most successful multinationals. But he should also recall that a backlash against Huawei’s perceived closeness to China’s leadership led to its blacklisting by America’s government.
