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Beijing - China’s banking regulator, which has asked local lenders to provide loan information on the country’s top deal-making companies, is examining examples of acquisitions gone awry by those firms to assess potential risks to the financial sector, people familiar with the matter said.
The China Banking Regulatory Commission is seeking to gauge how much risk Chinese banks face by lending funds to Anbang Insurance, Dalian Wanda, Fosun International, HNA Group, and the Chinese buyer of the AC Milan soccer club, the people said, asking not to be identified because the matter is private.
Specifically, the regulator is seeking to assess the likelihood of litigation costs, potential losses to banks if the deals sour and whether enough due diligence was conducted, the people said.
Among the deals that the CBRC is looking at is HNA’s purchase of San Francisco-based online travel agent Travana Inc., which the Chinese group is seeking to liquidate less than two years after buying it, according to the people, who didn’t provide other examples.
HNA, which had pledged to invest as much as $200m into Travana, only pumped in $27.5m before abruptly deciding to liquidate the company, according to a complaint filed with a bankruptcy court in San Francisco.
Representatives at the CBRC and HNA didn’t immediately respond to requests for comment. Travana officials weren’t reachable.
The Travana case provides a glimpse of what regulators are searching for as they examine the risks associated with China’s record global acquisition spree last year, a trend that’s been reversed in 2017 amid mounting scrutiny from the government.
After a record $247bn in overseas acquisitions in 2016, Chinese companies have only announced $65.6bn in such deals this year, according to data compiled by Bloomberg.
Anbang, Fosun, HNA and Wanda have been at the forefront of the buying binge in recent years, gobbling up stakes in everything from “Kong: Skull Island” producer Legendary Entertainment to New York’s landmark Waldorf Astoria hotel, Deutsche Bank and Cirque du Soleil.
Combined, the four groups have announced more than $60bn in deals since the start of 2016, according to data compiled by Bloomberg.
See a graphic on China’s dealmaking trends
Investors have been jittery about government scrutiny. On Thursday, as news of the CBRC’s request spread through China’s financial markets, shares of companies linked to Wanda, Fosun and HNA tumbled and the Shanghai Composite Index erased an early gain.
The turbulence came less than 36 hours after MSCI said China’s domestic equities would join its benchmark indexes, a stark reminder for international money managers of the risks in a market where opaque regulatory decisions are commonplace.
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