Chinese Conglomerate HNA Gets a Lifeline

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As Beijing takes on its heavily indebted private companies, China’s HNA Group Co. is quietly getting a helping hand.

Last week, Chinese authorities seized Anbang Insurance Group Co., a conglomerate that had been buying assets around the world. Yet behind the scenes the Chinese government has been aiding HNA, a similarly acquisitive giant with growing financial troubles. Some officials in Beijing, for instance, have encouraged state-owned banks to keep lending to HNA, people familiar with the matter say.

The delicate treatment spotlights HNA’s close relationship with the Chinese government. Some analysts also say the conglomerate, which has a complex web of lending between subsidiaries, may pose significant risks to the financial system.

In mid-February, two days before the Chinese New Year, HNA sent a memo to employees listing its past year’s achievements and voicing its support for China’s Communist Party and President Xi Jinping, a practice more common among state-owned Chinese companies.

“HNA Group is an enterprise that belongs to the people,” the memo from the privately held group said. It noted its assets grew 24% to nearly 1.5 trillion yuan ($237 billion) and revenue nearly doubled to $110 billion, pushing the airlines-to-hotels group up the ranks of the world’s largest companies.

Since last summer, the conglomerate has found it increasingly difficult and costly to raise money and meet its financial obligations after amassing roughly $100 billion in debt during an aggressive overseas acquisition spree. Some lenders tightened credit to HNA last year after the Chinese government began scrutinizing the debt levels of the country’s most acquisitive companies.

More recently, Chinese banks have reopened the spigot. In early February, a group of government officials met in Beijing with senior HNA executives to discuss the group’s financial situation, according to a person who was briefed on the meeting. Also present were representatives of state-owned banks and the governor of Hainan province, where HNA is based, the person said.

In the meeting, government officials told banks to keep lending to HNA and to avoid actions that could cause the company or its units to default on their debts, according to the person. Several days later, HNA said it had gotten a new $3.2 billion credit line from state-owned China Citic Bank Corp. Bank of China Ltd.also stepped in with a new credit facility, according to a person familiar with the matter.

Government officials also asked HNA to sell assets that fall outside Beijing’s policy agenda, the person said, including overseas real estate.

Such asset sales by HNA are already under way.

A regulatory filing this past week said HNA is planning to sell some or all of its shares in Park Hotels & Resorts Inc., a U.S.-listed real-estate investment trust that owns Hilton hotels and other commercial properties. HNA’s 25% stake in the company, acquired less than a year ago, is currently worth about $1.4 billion. The group recently sold two land plots where Hong Kong’s old airport used to sit and the Wildenstein mansion on Manhattan’s Upper East Side after buying them less than 18 months ago.

In response to questions from The Wall Street Journal, Suren Rana, a senior HNA executive in New York, said HNA’s investment and asset-sale decisions are “not based on government directives.” He said regulators in China have “discouraged all Chinese companies” from overseas real-estate investments, and HNA is selectively selling properties that have done well.

Ratings firm Standard & Poor’s in mid-February lowered its assessment of HNA’s creditworthiness by two notches to ccc+, a highly speculative grade, noting that the group “faces significant debt maturities amid deteriorating liquidity.” HNA that day said its finances were “very healthy” and said some of its top executives had bought its bonds as a show of support.

Mr. Rana said multiple Chinese and Western banks have extended new credit to the company in the past couple of months, and said the lending was not because of government orders. The degree of HNA’s “liquidity challenges” has been vastly overstated, he added.

Some employees were recently told that HNA intends to cut as much as 10% of its staff in China, and some layoffs took place shortly before the New Year holiday commenced on Feb. 16, according to people familiar with the matter. HNA has over 410,000 employees globally, around a quarter of whom are in China.

“We buy and sell businesses all the time so the number of our employees will constantly be going up and down,” Mr. Rana said.

Until about a year ago, HNA was one of China’s most acquisitive companies, having spent more than $50 billion over two years scooping up assets around the globe. Some investments it eyed were far afield from its core aviation and hospitality businesses.

It had, for example, considered buying stakes in retailer Toys ‘R’ Us Inc. and British grocery-store chain J Sainsbury PLC, according to people familiar with the matter. Mr. Rana said HNA’s leadership wasn’t aware of these deliberations.

Now, even some of HNA’s prized assets are being considered for sales or stake divestments while HNA looks for ways to raise cash to service its debt and repay over $20 billion in near-term financial obligations, according to filings and people familiar with the matter.

The group, which last year became the largest shareholder of Deutsche Bank AG , recently reduced its stake by about a percentage point to 8.8% after revising a margin loan arrangement for its shares in the bank.

At times there has been little coordination in selling assets, people familiar with the matter say. Some employees have worked on unloading assets and then read in the press those assets had been sold without their knowledge, the people said. Mr. Rana said HNA is “highly decentralized” and it is possible certain information wasn’t shared among teams.

Outwardly, HNA’s executives have sought to portray calm. In late December, as HNA planned asset sales and increased leverage through some of its most liquid stakes, Chairman Wang Jian took the company’s private jet to the South Pole, placing an intricate gold statue of Buddha on the South Pole for his birthday, according to a person familiar with his travels. Chinese media hailed the trip as the first commercial flight to Antarctica.

Mr. Rana said HNA still aims to become one of the world’s 10 largest companies by revenue. He said HNA is selectively selling assets with an eye to making a profit, adding the group “is always looking at deploying our capital into the most attractive opportunities.”