* HNA expects strong demand for wealth management
* Sees financials as natural extension of current business
* Reflects broader push by China into financial services
BEIJING/HONG KONG, March 10 (Reuters) - After a spending
spree stretching from hotels to electronics distribution in
2016, Chinese conglomerate HNA Group says it is now investing in
financial services, betting on asset managers and consumer
finance for growth at home and overseas.
The owner of Hainan Airlines Co inked about $20
billion in deals last year, snapping up a stake in Hilton Hotels
and investing in catering and logistics firms - spending that
raised concerns the group was borrowing too heavily and
spreading itself too thinly.
With more than $100 billion in assets, investments this year
have included a hedge fund platform, a New Zealand lender and a
3 percent stake in Deutsche Bank.
The moves reflect a broader push by China into financial
services globally as Beijing encourages its corporate sector to
expand overseas, although they face increased regulatory
scrutiny in the United States and Europe.
More than a dozen Chinese firms - not all with financial
background - are scouting for financial sector targets from
Portugal to New York, the Asia head of financial sector M&A with
a European bank in Hong Kong said. HNA is among those leading
"We know the demand for wealth management is going to be
very strong," Guang Yang, the chief investment officer of HNA
Capital, the group's financial arm, told Reuters.
"We have a very large customer base, frequent flyers and
people staying in our hotels," he said, a readymade client list.
A person familiar with HNA strategy said the group saw
financial services - particularly asset management - as a
natural extension of its aviation and logistics businesses:
first it moved people, then freight and now cash.
"As the Chinese are getting wealthier and their demand for
investment opportunities grows, the ability to manage assets on
a global basis will (be important and) a good business to get
into early," this person said, declining to be identified in the
absence of permission to talk to the media.
HEDGE FUND, LENDER, INSURER
China's domestic asset management industry has ballooned in
recent years, with the country's 108 fund managers, 12 qualified
securities firms and one qualified insurer overseeing mutual
fund assets alone worth 9.2 trillion yuan ($1.34 trillion) at
the end of 2016, according to the Asset Management Association
Financial services produced almost a fifth of group
operating revenue and more than a quarter of gross profit in
2015, an HNA Group bond prospectus showed in September.
The unlisted group does not publish up-to-date financial
figures. The prospectus showed long-term borrowing had increased
more than 40 percent from a year earlier to $28.25 billion.
In HNA's latest deals, it bought a large stake in hedge fund
platform SkyBridge Capital from Anthony Scaramucci, a high
profile supporter of U.S. President Donald Trump and spent $460
million on New Zealand's largest non-bank lender UDC Finance.
Two people with knowledge of the matter said HNA is bidding
for UK-listed insurer Old Mutual's $900 million controlling
stake in its U.S. asset management business. HNA declined to
Both SkyBridge and UDC Finance, which mainly provides car
loans and equipment finance, offer stable revenue, while
allowing HNA to increase yields by borrowing in the
institutional market and lending in the retail market.
The Auckland-based company also boasts a management system
that HNA could potentially utilise in China, where consumer
finance is blossoming from a low base.
Still HNA's rapid expansion has prompted concerns it is
spreading itself too thinly.
"The real risk for HNA is a loss of strategic focus," said
Brock Silvers, founder and managing director of Kaiyuan Capital,
a Shanghai-based investment advisory firm.
"Their plan to build a financial empire takes a lot of human
capital, resources and time."
Carol Yuan, an analyst with Aberdeen Asset Management, said
she was concerned with HNA's debt, which can sit anywhere in the
group financial structure and can be issued by any part of the
"It's hard to get comfortable around how they manage risks,"
(Reporting by Matthew Miller and Julie Zhu; Additional
reporting by Sumeet Chatterjee and Umesh Desai in HONG KONG;
Editing by Clara Ferreira Marques and Neil Fullick)