China’s banking regulator, which has asked local lenders to provide loan information on the nation’s top deal-making companies, is examining examples of acquisitions gone awry by those firms to assess potential risks to the financial sector, people familiar with the matter said.
The China Banking Regulatory Commission is seeking to gauge how much risk Chinese banks face by lending funds to Anbang Insurance Group Co (安邦保險集團), Dalian Wanda Group Co (萬達集團), Fosun International Ltd (復星國際), HNA Group Co (海航集團) and the Chinese buyer of AC Milan soccer club, the people said, asking not to be identified because the matter is private.
Specifically, the regulator is seeking to assess the likelihood of litigation costs, potential losses to banks if the deals sour and whether enough due diligence was conducted, the people said.
Among the deals that the commission is looking at is HNA’s purchase of San Francisco-based online travel agent Travana Inc, which the Chinese group is seeking to liquidate less than two years after buying it, said the people, who did not provide other examples.
HNA, which had pledged to invest as much as US$200 million into Travana, only put in US$27.5 million before liquidating the firm, according to a complaint filed with a bankruptcy court in San Francisco.
Representatives at the commission and HNA did not immediately respond to requests for comment.
Travana officials were not reachable.
The Travana case provides a glimpse of what regulators are searching for as they examine the risks associated with China’s record global acquisition spree last year, a trend that has been reversed this year amid mounting scrutiny from the Chinese government.
After a record US$247 billion in overseas acquisitions last year, Chinese companies have only announced US$65.6 billion of such deals this year, according to data compiled by Bloomberg.
Anbang, Fosun, HNA and Wanda have been at the forefront of the purchasing in recent years, buying stakes in everything from Legendary Entertainment to New York’s landmark Waldorf Astoria hotel, Deutsche Bank AG and Cirque du Soleil Inc.
Combined, the four groups have announced more than US$60 billion in deals since the start of last year, data showed.
As news of the commission’s request spread through China’s financial markets yesterday, shares of companies linked to Wanda, Fosun and HNA tumbled, and the Shanghai Composite Index erased an early gain.
The turbulence came less than 36 hours after MSCI Inc said that China’s domestic equities would join its benchmark indices, a stark reminder for international money managers of the risks in a market where opaque regulatory decisions are commonplace.
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