China’s HNA group aims to do more deals - http://on.ft.com/29jjqes
Conglomerate has launched several takeovers this year
The chairman of HNA group, the acquisitive Chinese conglomerate, is looking to do more deals because he is confident about the growth of tourism in spite of the country’s economic slowdown.
“Of course!” Chen Feng says when asked in an interview with the Financial Times whether mergers and acquisitions will continue.
HNA owns Hainan Airlines, China’s fourth-largest airline. This year, in a flurry of dealmaking, it has unveiled transactions to buy Ingram Micro, a US information technology group, Carlson Hotels, the US owner of the Radisson brand, and a 13 per cent stake in Virgin Australia, the Australian airline.
Another HNA deal this year to buy Gategroup hit a snag on Monday after the conglomerate said in a preliminary statement that investors holding 61 per cent of the Swiss aviation catering company’s stock had tendered their shares. HNA, which had said its offer was conditional on a 67 per cent acceptance level, is due to issue a final statement on Thursday.
HNA’s deals have helped boost Chinese M&A to a record $121.1bn in the first six months of 2016 — a record for a single year.
“With such a good opportunity now in M&A if we’re provided the chance of global good quality assets that benefit our core business, of course we have to do M&A,” says Mr Chen. “Otherwise it’s a lost opportunity.”
HNA is considering more deals to expand its aviation and leisure assets because of its belief that Chinese tourism will continue to flourish, even though the country’s economic growth has been slowing since 2011.
“The more money Chinese have, they go all around the world. Any country that doesn’t have Chinese tourists, then that country has a problem,” says Mr Chen, speaking on the 34th floor of London’s Shard building during a visit to the UK capital.
“So the development of aviation has a big potential. There will be an impact [from China’s economic slowdown] but it won’t be that big. So we’re very confident.”
HNA, based on China’s tropical island of Hainan, entered the Fortune 500 list of the world’s largest companies by revenue in 2014 at number 464.
In addition to Hainan Airlines, HNA has assets worth more than $80bn including 33 overseas companies. Last year the group’s revenue surpassed $25.6bn.
If the Ingram Micro deal goes through, Mr Chen says it could turn HNA into one of the world’s top 100 companies, with revenue exceeding 700bn to 800bn yuan.
Mr Chen says President Xi Jinping’s policy of One Belt One Road, which aims to rebuild the ancient Silk Road trade routes between China and Europe, will lead to more overseas deals by Chinese companies.
Meanwhile, Mr Chen shows no alarm about Britain’s vote to leave the EU.
Last year HNA acquired the Thomson Reuters building in London’s Canary Wharf district, and he says he will not be put off by the Brexit decision.
“I don’t think [Brexit] will impact [our decision to invest],” adds Mr Chen. “London is an international financial city, UK is a mature market. So no matter if the UK leaves or stays in Europe, it might have some impact on the bigger picture, but it won’t be too big a change.”
Born in the northern Shanxi province in 1953, Mr Chen began work at China’s civil aviation administration, which regulates the country’s civil aviation, and went to Germany to study at a Lufthansa flight school in Germany.
After working for the World Bank in Hainan, in 1990 he was recruited by the island’s local government to establish Hainan Airlines.
The company started operations in 1993 with just two aircraft. In 1995, after China allowed foreign investors to buy shares in its airlines, Mr Chen persuaded hedge fund manager George Soros to invest $25m in Hainan Airlines.
In 1997, Hainan Airlines listed on the Shanghai stock exchange. It now has a market cap of 39.15bn yuan, almost half of Air China’s 78.49bn, and a fleet of 161 aircraft.
Mr Chen also credits the company’s development to a unique corporate culture at HNA that blends Buddhism and traditional Chinese culture including philosophy. HNA’s headquarters and surrounding buildings in Hainan’s Haikou city are shaped like Buddha’s hand.
A vegetarian, Mr Chen follows Buddhist doctrine but is adamant he’s not a Buddhist.
“It’s a problem of belief,” he says. “I’m a Communist party member, so I definitely believe in Communism. But Communist party members can’t be separate from human culture, and as a Chinese it’s even more important to understand our own rich culture.”