Bank of America Corp has told investment bankers to stop working on transactions with HNA Group Co (海航集團) for now amid growing concerns about the acquisitive Chinese conglomerate’s debt levels and ownership structure, according to people familiar with the matter.
The US investment bank joins other Wall Street firms, including Citigroup Inc and Morgan Stanley, that are largely steering clear of advising and financing the group on deals because they are unable to get internal approvals from “know your customer” committees, the people said, asking not to be identified because the information is private.
Senior officials at Bank of America’s Merrill Lynch unit communicated internally last month that bankers should not currently pitch for new acquisitions and fundraising, the people said.
Scrutiny of Chinese companies came into focus this week after people familiar with the matter said that China plans to cut off some funding for billionaire Wang Jianlin’s (王健林) Dalian Wanda Group Co (萬達集團), concluding the conglomerate breached restrictions for overseas investments.
An internal memo at Bank of America on holding off on deals with HNA for now went to fewer than five bankers who would be in a position to solicit business from the Chinese company, another person familiar with the matter said.
The New York Times reported earlier that Bank of America had said in an internal e-mail that it had decided to remove itself from transactions with HNA.
Bank of America had advised HNA on several attempted overseas acquisitions in the past few years, people said.
The decision has affected deals the firm was working on for HNA, including the planned Singapore IPO of HNA Commercial REIT, two of the people said.
Banks regularly reassess their comfort with potential clients and their stance toward HNA could change, they said.
HNA has not done significant fee-paying business with Bank of America in recent months, one person with knowledge of the company said.
Citigroup’s and Morgan Stanley’s internal committees have also struggled to get sufficient clarity on the source of funds and ownership structures at HNA, leading those banks to avoid deals for some time, the people said.
Still, some firms that shy away from the parent company are willing to do business with HNA units. Morgan Stanley was one of the banks that committed to a total US$8.5 billion in financing for Avolon, a business owned by one of HNA’s listed arms, in its purchase of CIT Group Inc’s airline leasing business last year.
“HNA Group partners actively with many global investment banks and continues to do so,” the conglomerate said in an e-mailed statement. “We carefully select our financial advisers and financing sources on each transaction, based on specific capabilities and expertise, consistent with our commitment to global best practices.”
UBS Group AG, which has historically helped HNA on multiple transactions, has also started monitoring the conglomerate’s debt levels more closely, separate people said.
The Swiss bank is increasingly concerned that the Chinese company would struggle in the short term to complete large acquisitions, according to one of the people.
UBS continues to do business with HNA, though its internal risk and compliance teams have begun asking more questions about dealings with the Chinese firm, another person said.
HNA has told bankers it plans to slow the pace of its overseas dealmaking, according to one of the people with knowledge of the matter.
The move comes as acquisitive Chinese companies are under increasing scrutiny at home.
HNA’s ownership is difficult to decipher as the group is held together through scores of companies — mostly unlisted entities with little available public information — holding stakes in each other. Atop the hierarchy is a person named Guan Jun, according to Chinese corporate filings.
Little is known about Guan. HNA plays down his role, with CEO Adam Tan (譚向東) saying he is just a Chinese businessman and chairman Chen Feng (陳峰) telling the South China Morning Post newspaper that Guan is not a significant shareholder as he only owns a “tiny” stake.
Yet Guan owns the equivalent of a 29 percent stake in the group, more than any of HNA’s executives including Chen and Tan’s stakes combined, the filings show.
HNA’s ownership has also been under attack from Guo Wengui (郭文貴), a fugitive Chinese tycoon who’s been alleging HNA has secret ties to powerful Chinese Communist Party officials — claims denied by the company.
Guo is facing defamation lawsuits from HNA and others over his various claims.
Its governance has drawn questions from the likes of the New York Times, which on Wednesday reported that HNA has been doing business deals with family and friends of its top executives in the past quarter century, with limited disclosure to investors.
In response to the article, HNA said its related-party transactions are reviewed and documented on terms consistent with appropriate standards
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