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Behind China’s boldest dealmaker HNA are billions in pledged shares



HNA Group Co. supercharged its transformation from an obscure Chinese airline operator to a juggernaut capable of amassing multibillion-dollar stakes in globally recognised brands, including Hilton Worldwide Holdings Inc. and Deutsche Bank AG.

Now China’s boldest dealmaker, with more than US$40 billion of acquisitions spanning six continents, faces growing regulatory scrutiny from Beijing that threatens to spook bond investors and raise HNA’s financing costs when most of the shares pledged to fund its buying spree are declining. If the value of its collateral falls enough, HNA could be forced to sell its holdings to repay debt.

While privately held HNA declined to provide a complete accounting of its share pledges, data from regulatory filings compiled by Bloomberg provide an unprecedented look at the company’s exposure.

HNA and its units have pledged at least $24 billion of shares across 15 publicly traded firms, including the Hilton and Deutsche Bank stakes, filings show. HNA-related entities also have pledged billions more of unlisted assets that include shares of holding companies, land-use rights, planes, a golf resort and US$289,000 of corporate vehicles. Shareholders pledged a 17 per cent stake in the group’s closely held parent, according to government filings obtained by Bloomberg that document the pledges.

“Whenever your share pledges increase, especially with respect to ratcheting up debt, I would say it increases risk,” said David Yu, an adjunct finance professor at New York University Shanghai. “The question really becomes, ‘At what point is it too much?’”

There’s nothing inherently wrong with share pledges or collateralised borrowing. Both are common forms of financing, particularly in China, where about 10 per cent of the country’s stock-market value has been pledged for loans, according to a report in January by David Cui, a China equity strategist at Bank of America Corp.

HNA, founded in 1993 and chaired by Chinese aviation tycoon Chen Feng, said by email that the pledging of shares isn’t its only financing source. The company said its business operations,…

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