HNA to Owe Higher-Than-Usual Fee If AHG Deal Collapses

  • Chinese group is said to agree to termination fee exceeding 5%
  • Move illustrates wariness HNA faces amid government scrutiny

HNA Group Co. will pay a higher-than-usual termination fee if the Chinese conglomerate is unable to make good on its agreement to buy Automotive Holdings Group Ltd.’s business that transports refrigerated products, according to a person familiar with the matter.

HNA agreed to pay a fee exceeding 5 percent of the deal’s A$400 million ($305 million) enterprise value should it fail to complete the purchase, the person said, asking not to be named discussing a private matter. AHG said Thursday that it would receive an unspecified "meaningful" compensation from the Chinese company should HNA fail to get the necessary regulatory approvals to complete its acquisition of the business.

Australia’s Takeovers Panel recommends termination fees to be about 1 percent of a deal’s equity value -- which, unlike enterprise value, excludes assumed debt -- for publicly listed targets. Though those guidelines are for situations when the seller scraps an agreement, termination fees for the buyers are typically set at a similar level.

A representative for HNA said that the break fee for the deal is standard for a transaction of this size, declining to comment on the actual fee level. A representative for AHG declined to comment.

The agreement illustrates the wariness faced by Chinese companies such as HNA, whose debt-fueled acquisition spree has put the company in the spotlight for regulators in China, the U.S. and Europe. Chinese suitors in particular are having increasing difficulty completing offshore acquisitions amid a government clampdown on capital outflows.

— With assistance by Zoe Ma, and Prudence Ho

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