Starting with a registered capital of Rmb10mn, HNA Group has grown its total assets to more than Rmb1trn. In just the past three years, the Group completed acquisitions valued at more than US$40bn. The most frequently asked question now is: where did HNA obtain its capital? Recent articles (see Financial Times, June 2, 2017) have focused on the firm’s early loans from the World Bank, bank loans, and offshore debt. However, we believe much of HNA’s growth was funded by off-balance sheet shadow banking loans. These loans were made through several related companies that are not detailed in any company statements.
We doubt this funding is sustainable given recent signs of financing difficulties, upcoming peak debt repayment, and political impact.What does this mean for banking system in general and the wider economy?
- 1) First,itshowshoweasyitisforChinesecompaniestoslipthenetofthe regulators to go directly to the public to raise money.
- 2) Second,it demonstrates the explosive growth of shadow financing in China, which in a decade has risen from less than 10% of credit to more than half.
- 3) Third,it adds further evidence to the idea that there is a clear preference in Beijing to constrain debt in the formal banks but to allow it to rise among private households, a policy called “leveraging the consumer.”
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