5 January 2018 – HNA Walks Away From Late-Stage Value Partners Deal Talks

By Jonathan Browning
Updated on

HNA Group Co. walked away from late-stage negotiations to buy a stake in Hong Kong fund house Value Partners Group Ltd., people with knowledge of the matter said.

HNA pulled out of talks to buy a significant stake from Value Partners founders Cheah Cheng Hye and V-Nee Yeh just weeks before a final agreement was expected to be signed, according to one of the people. The Chinese conglomerate’s termination of the negotiations wasn’t related to difficulty obtaining financing, another person said, asking not to be identified because the information is private. 
Value Partners, which has a market value of about $1.9 billion, said in a filing Thursday that the two shareholders’ discussions with an unnamed suitor were scrapped due to commercial considerations. Shares of Value Partners, which had rallied since Bloomberg News first reported talks with HNA in May, fell 4.7 percent to HK$8.08 at the close Friday in Hong Kong.
The fund manager had indicated last month that a deal was close, saying the potential acquirer’s advisers were finalizing a funding confirmation that’s required before an offer can be formally made. Negotiations on terms of a deal were being finalized and financing talks had reached an advanced stage, according to a Dec. 20 filing from Value Partners.
HNA, which started as a regional airline on China’s sunny Hainan island, has spent more than $40 billion since the start of 2016 to buy logistics, hotel and technology assets around the globe. The debt-fueled acquisition spree has strained HNA’s finances and raised its funding costs.

Strategic Businesses

“They may change their strategy from a diversified approach towards a more concentrated, more focused approach,” said Oliver Rui, a finance and accounting professor at China Europe International Business School in Shanghai. “They were engaging in all the businesses -- I don’t think that will help them in the long run. It sends a very concerning signal to the world about Chinese buyers.”

Private enterprises including HNA and Dalian Wanda Group Co. are canceling some of their deal negotiations or selling recently-acquired assets, according to Rui. That will continue at least until the end of 2018, he said.

A spokesman for HNA declined to comment. A representative for Value Partners declined to comment, while Cheah didn’t immediately respond to emailed queries.

The Mysterious Chinese Company Worrying the World: QuickTake Q&A

HNA has racked up more than $28 billion in short-term debt, and its interest expenses have surged above levels it can cover through earnings. The company has taken various measures to bolster confidence such as touting creditor support and announcing stock purchases by executives in a bid to assuage concerns about its finances.

“The core of HNA’s business produces strong cash flows and are strategic businesses,” said Henry Tillman, founder of London-based advisory firm Grisons Peak LLP. “My read is that financial services are just not core to HNA. I suspect that they did not want to launch prior to the Party Congress, then decided again to try it after, only to be discouraged.”

In October, China held its Communist Party Congress, a twice-a-decade gathering that sets all major policies and shapes the country’s top leadership through 2022.

Buying a stake in Value Partners would have added to financial industry investments by HNA that include a $4 billion holding in Deutsche Bank AG, aircraft-leasing operations across the world and a 25 percent interest in Old Mutual Plc’s U.S. asset management arm. Value Partners, which has expressed ambitions of becoming the Asian answer to Fidelity Investments, manages about $16.8 billion of assets, according to a statement last month.

— With assistance by Prudence Ho