Glencore withholds US assets from HNA sale
Deal with Chinese conglomerate faces regulatory obstacle
Glencore, the mining and commodities trader, has withheld its US assets from the sale of a 51 per cent stake in its oil products storage business to HNA because they must be approved by US authorities amid greater scrutiny of the deal-hungry Chinese conglomerate.
The deal, which was announced in March, will no longer include three US-based assets unless Glencore receives “satisfactory” clearance from the Committee on Foreign Investment in the United States (Cfius), the Switzerland-based company said. That will reduce the total amount of the sale to $579m from an original $775m, it said.
It comes as HNA faces greater global scrutiny over its secretive ownership structure following a $40bn dealmaking spree over the past three years. This month New Zealand’s Overseas Investment Office blocked HNA from taking over a unit of ANZ Bank because it could not verify who controlled the company.
Earlier this month, US-based software group Ness Technologies filed a complaint with the Supreme Court of the State of New York against HNA and its Beijing-based IT outsourcing unit Pactera. The complaint states that discrepancies among HNA’s reports of its ownership structure led to Cfius scuppering the acquisition of Ness’s unit.
HNA, which was founded in the early 1990s on China’s tropical Hainan Island as the owner of Hainan Airlines, has bought everything from real estate to airlines and logistics groups around the world as well as large stakes in companies such as Deutsche Bank and Hilton Worldwide.
But analysts including the rating agency Standard & Poors have expressed concern about the group’s high leverage and access to funding. This month a liquidity squeeze caused the company to pledge HK$2.8bn ($362m) of shares in a Chinese bank as collateral.
The Glencore unit’s sale to HNA Innovation Finance is part of the creation of a new vehicle, HG Storage InternationaI, which will hold the trader’s oil products storage and logistics assets in Europe, Africa, the Middle East and the Americas. The US assets will be transferred into the company and the remaining balance paid in 2018 if Cfius clearance is given, Glencore said.
“HGSI intends to expand its global footprint through acquisitions and organic growth supported by its shareholders,” Glencore said. “A combined board and management team with extensive operational and trading experience is in place to execute HGSI’s growth plans and utilise the strengths of Glencore and HNA groups globally.”
HNA’s statement on the deal’s closing did not mention the US assets or any approval by Cfius.
“This purchase will help improve HNA Innovation Finance’s global position in commodity trading,” HNA spokesperson Qi Guanghui said.
The deal follows years during which the oil glut made storage immensely profitable as traders scrambled for locations to place excess barrels when the market became swamped.
China is the world’s largest importer of oil and Chinese buying has helped oil prices recover this year, with Brent crude oil rising above $67 a barrel for the first time since 2015 this week.