REPORT FROM THE U.S.—China’s HNA Group appears poised to finish unloading all its shares in Hilton-related companies. Its latest disposition may be its 26.1% stake in Hilton, which stands at approximately $6.4 billion in aggregated value, according to an SEC filing dated 5 April.
According to the filing, the Chinese conglomerate is pursuing a sale through public offerings of some or all of its stake in Hilton—a move similar to what it did in March with its shares in Hilton spinoff companies Park Hotels & Resorts and Hilton Grand Vacations.
It’s a move that comes as no great surprise to analysts who cover Hilton, particularly given HNA’s move in early March to sell its stake in Hilton spinoff Park Hotels & Resorts. Amanda Sweitzer, senior research associate at Baird, said the industry has been watching to see whether HNA would make this move following its recent selloffs. She noted its 26.1% stake in Hilton is significantly more valuable than its investments in Park and HGV.
It appears pressure from the Chinese government is behind HNA’s decision to sell off stocks and assets, she said. There’s not much public insight into the inner workings of HNA and how much liquidity it needs, she said, but Hilton’s stock has performed well for the company since it acquired its stake in October 2016.
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“In general, it’s probably going to be positive for the stock over the long term,” she said.Hilton hasn’t publicly commented on HNA’s intentions, but it seems likely Hilton would follow Park’s and HGV’s example by repurchasing some of its stock, Sweitzer said. If HNA sells its entire stake, it likely would be offered at a discount to Hilton. The company would likely purchase $1 billion of stock directly from HNA along with a secondary offering to meet its targeted leverage of 3x to 3.5x, she said.
Investors were concerned HNA would sell its stake at a discount, Sweitzer said, but a secondary offering would partially or fully lift that overhang.
In a note to investors dissecting HNA’s possible sell down, Baird analysts noted Hilton’s stock has been trading at a discount compared to Marriott International’s.
The two main questions now are how much of its stake will HNA sell and when, she said.
HNA Group’s extensive investments in U.S. hotel companies have been in question since the Chinese government issued a crackdown on foreign investments last year, prompting the company to pay down debt following years of aggressive overseas investment (see sidebar).
Hilton declined to comment on the issue, and emails to HNA were not returned by press time.
HNA’s history with Hilton
HNA acquired a 25% stake in Hilton in March 2017 for $6.5 billion from Blackstone. Since that time, the stake has increased to 26.1% because of share buyback activity.
At the time the deal was announced in October 2016, HNA was poised to own corresponding 25% stakes in Park Hotels & Resorts and Hilton Grand Vacations, which spun off from Hilton in early January 2017.
In early March, HNA announced its intentions to sell its 25% stake in Park, and Park responded by completing a secondary offering of nearly 40 million shares owned by HNA for $25.75 per share, and repurchased an additional 14 million shares for $24.85 per share.
In mid-March, HNA was back at it, this time selling its 25% stake in HGV for $46.25 per share, according to an SEC filing. HGV repurchased 2.5 million shares back at the time of the deal.
In recent weeks, HNA has been shedding more of its assets beyond hotels as part of its move to recover debt and complies with new Chinese regulations on overseas investment.