By Alexandra Stevenson
HNA Group says that Wall Street’s biggest banks are knocking at the door to do business with it as the huge Chinese conglomerate buys up businesses around the globe.
But one of those banks is now walking away.
Bank of America has decided not to do business with HNA, citing concern over the company’s opaque structure, among other issues, according to an internal email reviewed by The New York Times.
While the bank does not have major commitments with HNA, its pullback is a sign that Wall Street’s enthusiasm for deal-hungry Chinese giants is beginning to cool because of these companies’ often murky ownership and large appetite for risk.
The bank’s email listed concerns about HNA, including its shareholding and corporate structure, Chinese regulatory interest in the company and its complex business model. It also cited allegations of political connections. As a result, the bank decided to remove itself from any transactions, a senior executive wrote.
“We simply don’t know what we don’t know, and are not prepared to take the risk,” Matthew M. Koder, Bank of America’s president for Asia Pacific, wrote in the email, dated June 28.
“Given the importance of maintaining rigorous client selection standards, we have decided not to be involved with transactions with the HNA Group at this point in time,” Koder added.
Bank of America AND HNA declined to comment.
HNA is a privately held company that has received much of its funding from Chinese state banks, which have given HNA a $60-billion line of credit, according to corporate filings.
Bank of America had been in discussions with HNA to enter new lending partnerships in future transactions, according to a person with direct knowledge but who was not authorized to speak publicly because the discussions were private. It has also been among several other banks helping HNA to take at least one of its myriad private companies public.
The bank’s decision came days after reports that a Chinese banking regulator had asked domestic banks to examine their exposure to some of China’s biggest overseas acquirers, including HNA Group. Speaking at a briefing in Beijing on June 22, Liu Zhiqing, a senior banking official at the China Banking Regulatory Commission, warned that these companies could pose a “systemic risk” to the country’s banks.
For most of the big banks, doing business with HNA has been lucrative. On one side of business, banks have helped HNA buy companies by arranging what is called collateralized financing. That has entailed allowing HNA to borrow money against the shares of the company that it is acquiring.
Big banks have also received large paydays for advising on HNA’s acquisitions. HNA and its affiliates overseas have paid an estimated $100 million in fees to banks advising on mergers and acquisitions since 2016, according to estimates by Dealogic.
© 2017 Harvard Business School Publishing Corp.