Chinese Investment A Fabulous Winged Creature

Chen Feng's HNA group is on a global buying spree, and has snapped up shares in Deutsche Bank. But can the indebted company keep it up?
Quelle: Bloomberg
Chen Feng is one of the most important figures in Chinese business.

No alcohol, no cigarettes, no banquets. Chen Feng wears simple, traditional clothing during public appearances. Nothing would indicate that the Buddhist, with a gentle face and humble smile, is one of the most important figures in the Chinese economy.

Mr. Chen is founder and head of the HNA Group, which includes airlines, hotels and logistics companies throughout the world. It's has been virtually unknown in Germany but that's changing. Mr. Chen is on a global shopping spree worth billions, and ailing German companies are on his list.

HNA just bought Frankfurt-Hahn Airport and is said to be interested in HSH Nordbank, as well as a stake in Air Berlin. The group's most important German participation, however, is in Deutsche Bank. With nearly 10 percent of shares, HNA has become one of financial institution’s biggest stakeholders.

In recent years, HNA has grown at breathtaking speed. Mr. Chen started out in 1993 by founding Hainan Airlines with a single plane. Today, his global empire comprises almost 20 airlines, including Hong Kong Airlines, Tianjin Airlines and Lucky Air. HNA is one of the top addresses in the Chinese logistics and travel sectors. It is said to own 450 hotels around the world. It is also highly indebted and far from transparent.

Mr. Chen’s modesty quickly vanishes when it comes to his company's rise. “We have created a wonder,” the 63-year-old enthused during a lecture in the United States last year. An HNA plane takes off every 20 seconds, “and we’re going to buy 1,000 more aircraft,” he said. Since 2015, Fortune Magazine has listed HNA among the world’s 500 largest companies. Mr. Chen sees the group numbering among the top 10 within a decade.

To reach that goal, HNA is buying one foreign firm after another. In just the last few months, Mr. Chen spent $6 billion (€5.5 billion) on US electronics wholesaler Ingram Micro, $6.5 billion on a quarter of the Hilton hotel chain, and $1.5 billion on Swiss airline caterer Gategroup Holdings. All this, even as the Chinese government tries to put the brakes on foreign takeovers by Chinese companies through stricter monitoring of capital flow.

For future growth, the group is looking primarily to the financial sector. Mr. Chen is counting on the increasingly prosperous Chinese seeking out secure investments with his group.

But it’s not at all clear how stable HNA really is. Even Chinese state media have expressed doubts over the group’s strategy.

Close links to politics allow the company to access loans from Chinese state banks and maintain its rapid growth.

Several articles appeared in recent weeks openly questioning how the company has been able to reach such a size in just a few years, and finance so many acquisitions. At the end of April, Chinese magazine 21st Century Business Herald reported that HNA had taken on debts amounting €81 billion ($88.7 billion) in order to finance the acquisitions. Articles reporting this have since been deleted.

HNA's headquarters are in a 31-story skyscraper on the South Chinese vacation island of Hainan inspired by Garuda, a fabulous winged creature from Asian mythology that also serves as Hainan Airlines’ logo.  What happens inside is a mystery. The company doesn’t answer requests for interviews, and public appearances by management are rare.

Klaus Meyer, professor at the China Europe International Business School in Shanghai, tried to analyze the ownership structure of the company. He didn’t get very far. “At the top is Hainan Cihang Foundation,” Mr. Meyer said. It was established in 2013 and holds some 20 percent of the group’s shares. “Who controls them can’t be ascertained,” he said. Ownership structures are so tightly interwoven it’s impossible to tell where the real power lies.

There is a story that Mr. Chen flew to New York in 1995 to convince George Soros to invest $25 million in his airline. The sum is said to have doubled 10 years later. It’s unclear who are the shakers and movers behind the group. Mr. Meyer knows only that “HNA has good political connections.”

One of the most important stakeholders is said to be the son of a former Politburo Standing Committee member. And for more than 10 years, Mr. Chen has been a delegate to the Communist Party Congress, which meets every five years to elect the country’s top leadership. These close links to politics allow the company to access loans from Chinese state banks and maintain its rapid growth.

HNA already has political experience abroad. In January, the group caused an uproar by acquiring a stake in SkyBridge Capital, the hedge fund of American investor Anthony Scaramucci. Mr. Scaramucci wanted to sell the company so he would be free to take a job at Donald Trump’s White House. Many observers see this as an attempt by the Chinese to acquire a direct link to Washington. The deal was set to be examined by an ethics commission, whereupon Mr. Scaramucci had to give up his hopes of an advisory position.

This article originally appeared in Handelsblatt’s sister publication, WirtschaftsWoche. To contact the author: [email protected]