David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Think a $34 billion shopping spree capped off with snatching a 10 percent stake in Deutsche Bank AG will leave HNA Group Co. out of breath?

Think again.

The Chinese group has barely scratched the surface of what it can afford, at least going by the annual report it filed last month .

Total assets more than doubled during 2016, to 1.02 trillion yuan ($148 billion) from 469 billion yuan. Chairman Chen Feng has already arguably achieved his dream of creating one of the world's top 100 companies: Closely held HNA would be the 45th-biggest non-financial company by assets if it were publicly traded, according to data compiled by Bloomberg.

Flying High
HNA's total assets doubled last year to more than 1 trillion yuan
Source: Company reports

To put it another way, a business founded 24 years ago in a Chinese tourist resort whose key ultimate shareholders are a charity and an airline employees' union is now a bigger enterprise than Johnson & Johnson, Siemens AG or Glencore Plc.

If this headlong growth is about to be reined in by China's crackdown on outbound M&A, then HNA isn't showing any sign of it. Cash flows from financing last year came to 342.6 billion yuan. That's only narrowly behind the $50.7 billion that Anheuser-Busch InBev SA took in during 2016 to carry out the biggest all-cash takeover in history.

Operating Theater
HNA's financing, rather than its operating cashflows, are the key to its ability to invest
Source: Company reports

While most of that money went out the door almost immediately in the form of 333.4 billion yuan of investing cash flow, HNA can still fall back on some extraordinary credit lines. At the end of December, 369.1 billion yuan of its total facilities had been used up, but a further 242.3 billion yuan was yet to be deployed. 

Debt's not the only thing that's been building up: HNA's shareholders have been pumping in funds at an accelerating rate. The group's registered capital increased almost sixfold during the final quarter. In October, 28.8 billion yuan of cash was invested by its two immediate shareholders, Yangpu Jianyun Investments Co. and Hainan Traffic Administration Holding Co. Two months later, they added a further 20 billion yuan.

These impressive numbers do little to solve the mystery of exactly how HNA is achieving its debt-fueled growth.

Take those registered-capital injections. HNA's ultimate shareholders, according to the May 2016 prospectus for its takeover of Swiss aviation caterer Gategroup Holding Ltd., are Hainan Airlines Co.'s employee union; Hainan Province Cihang Foundation, a charity; and two individuals, Guan Jun and Bharat Bhise. 

How did that group manage to get hold of 49 billion yuan -- about $7 billion -- to invest during the last quarter of 2016? Bhise, chief executive officer of Bravia Capital, is a Hong Kong- and New York-based investment banker who's worked with HNA on several previous deals; almost nothing is known about Guan.  Charities and unions, meanwhile, aren't known for access to lavish cash deposits.

The question is particularly pertinent because of reports in recent months alleging that HNA's ownership structure isn't all it appears to be. Bai shoutao -- literally, "white gloves" -- arrangements, in which shareholdings are held by third parties on behalf of the true beneficial owners, aren't that unusual in China. There has been a flurry of allegations -- denied by the company -- that its connections extend to the family of a senior member of China's Politburo

Working out the sources of HNA's capital and its ownership structure isn't just a parlor game for investors and journalists. Take that 10 percent stake in Deutsche Bank. This is a more weighty business than an airline-catering company. For almost 150 years, it's been Germany's main vehicle for increasing its financial presence on the world stage. It's also been a significant lender to the real estate business established by U.S. President Donald Trump.

In March, HNA bought an 82.5 percent stake in Frankfurt-Hahn airport, a transit stop for members of the military on the way to Ramstein Air Base, the headquarters of NATO's Allied Air Command. HNA also took part in the $200 million purchase of SkyBridge Capital LLC from Antony Scaramucci, an early Trump supporter.

There's no reason why a private investor shouldn't own such sensitive assets. Hong Kong's richest man, Li Ka-shing, holds port, electricity and telecommunications assets on four continents. Global Infrastructure Partners, a fund established by a small group of U.S. bankers in 2006, owns London's Gatwick airport as well as ports and petroleum facilities across the globe.

Such deals are eased, however, by the fact that Li and GIP are well known. HNA is not. While the company says it's an independent business, government officials have the only outside input into appointments to the management committee of its controlling shareholder.  The shareholder with the largest economic interest is a union, in a country that bans such associations unless they're controlled by the government.

An HNA with nothing to hide has little to lose from more transparency and better governance. Its vision to get a finger in every bit of the global transport industry where money is made could be the seed of a mighty, and enduring, enterprise -- and all that cash represents potent soil in which to grow.

No plant can thrive in the dark for long, though. If HNA is to achieve Chen's lofty ambitions, the time to let in a little light is long overdue.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The filing is prepared for a bond offering and meets the filing requirements of that market, Ronald Low, a spokesman for HNA at Sard Verbinnen & Co. in San Francisco, said by e-mail.

  2. Sard Verbinnen's Low declined to comment on the sources of financing for the capital injections or Guan's identity. Jonathan Chia, an associate at Bravia Capital in New York, said by e-mail that Bhise declined to comment. The Financial Times reported last week that Bhise was no longer a shareholder in HNA Group, without saying where it got the information.

  3. According to HNA Holding Group Co.'s 2016 annual report, the management committee of its controlling Cihang Foundation is appointed jointly by existing committee members, by Cihang's sponsor and major donor (ie., HNA Group itself), and by Hainan province's office of civil affairs. 

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