China′s HNA group cuts stake in Deutsche Bank | Business| Economy and finance news from a German perspective | DW | 16.02.2018
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China's HNA group cuts stake in Deutsche Bank

Cash-strapped Chinese conglomerate HNA has stepped up efforts to restore confidence and bolster its balance sheet, announcing that it has further reduced its stake in German lender Deutsche Bank.

The company managing HNA's stake, C-Quadrat, announced on Friday that the Chinese conglomerate had lowered its holdings in Deutsche Bank to 8.8 percent from 9.9 percent a week ago.

Austria-based C-Quadrat also reiterated a previous statement that HNA would "continue to be a significant investor" in Germany's biggest private lender and that any further reduction of HNA's holdings was "not planned."

In a previous filing on February 9, HNA already announced that its share of voting rights in Deutsche Bank had fallen from 9.9 percent to 9.2 percent and that it had lent 4.9 percent of its remaining stake to raise funding while retaining a right to recall the stock.

Read more: Sieren's China: Deutsche Bank's Chinese stakeholder

The highly-leveraged Chinese group started out as a small airline and has grown into a conglomerate whose holdings include stakes in Deutsche Bank and Hilton Worldwide.

Read more: Exit the Dragon? Chinese investment in Germany

But since China has begun cracking down on capital outflows and risks stemming from the mounting pile of corporate debt, HNA's liquidity positions started to worsen at the end of last year.

According to data compiled by news agency Bloomberg, the conglomerate doesn't earn enough profit to cover interest expenses that have soared to levels topping those of any non-financial company in China.

Mounting debt problem

The group's woes stem from an aggressive debt-fueled expansion in recent years, during which it spent roughly $40 billion (€31.8 billion) on overseas deals, including becoming Deutsche Bank's largest shareholder after the bank's €8-billion ($10-billion) capital increase last year.

According to S&P Global Market Intelligence, HNA had total long-term debt of 382.8 billion renminbi (€48 billion, $60 billion) based on its last financial report at the end of June. Its net debt is equivalent to 6.5 times earnings before interest, tax, depreciation and amortization. The company claimed though it was in a "very healthy financial position," with total assets of 1.5 trillion renminbi as of the end of last year.

Read more: IMF warns high debt threatens China’s financial stability

But HNA is struggling to renegotiate is financial structure. On its sold stake in Deutsche Bank, it faces a paper loss of more than $200 million, according to the terms disclosed in filings. Deutsche Bank is among the worst-performing large European bank stocks in the past year as its turnaround has taken longer than projected to boost profit.

As a result of its financial problems, HNA saw its credit rating cut by S&P Global Ratings, downgrading the group's profile to ccc+ from b, citing significant debt maturities amid deteriorating liquidity. "While we understand that HNA Group continues to have access to capital markets and appears to have the support of some banks, in our view it is unclear that this will be sufficient for the company to meet its upcoming obligations," S&P said. It was the second reduction in HNA's creditworthiness by S&P in less than three months.

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uhe/aos (Reuters, AFP, dpa)

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