December 20, 2017 / 10:54 PM / 9 months ago

New Zealand blocks China's HNA due to ownership doubts

WELLINGTON/SYDNEY (Reuters) - New Zealand has blocked HNA Group’s $460 million purchase of a vehicle finance firm owned by Australia and New Zealand Banking Group (ANZ.AX) in the latest in a series of setbacks around the world for the acquisitive Chinese conglomerate.

Illustration photo of the HNA logo December 21, 2017. REUTERS/Thomas White/Illustration

The proposed sale of UDC, New Zealand’s largest non-bank lender, was agreed with ANZ nearly a year ago and the bank had counted on the proceeds to boost its capital.

But New Zealand’s Overseas Investment Office (OIO) cited uncertainty over HNA’s ownership structure for the rejection, reflecting mounting international concerns about the aviation-to-shipping group’s transparency and governance.

“The OIO did not determine who the relevant overseas person was from the information provided about ownership and control interests,” the OIO’s deputy chief executive of policy, Lisa Barrett, said in a statement.

HNA, which has announced acquisitions worth more than $50 billion in the past two years, has faced increased questions about its governance since a July announcement outlining its ownership showed two shareholders were proxies for founding executives.

Last month, Swiss regulators found the group had failed to disclose that company executives held controlling stakes in the conglomerate in submissions relating to HNA’s $1.5 billion takeover in 2016 of Gategroup, the airline catering group.

Illustration photo of the HNA logo December 21, 2017. REUTERS/Thomas White/Illustration

HNA also has faced difficulties in the United States. Earlier this month it was sued by Ness Technologies who accused it of failing to adequately answer questions in a U.S. review, thereby causing a $325 million deal between the two to fail.

Another deal announced in January, for HNA to buy a stake in Skybridge Capital from U.S. President Donald Trump’s former press secretary, Anthony Scaramucci, for an undisclosed sum, is still under review by the Committee on Foreign Investment in the United States.

An HNA spokeswoman said the New Zealand watchdog’s decision was inconsistent with the views of other regulators around the world that had approved HNA and other Chinese investments.

“The current political environment in New Zealand relative to foreign investment will play a significant role in our determination of next steps,” the spokeswoman said in a statement.

Still, it is rare for a deal to be rejected because of concerns over an ownership structure, said Daniel Wong, a lawyer and director with Flacks & Wong who advises companies about foreign investments and was not involved in the deal.

“For whatever reason the information they (OIO) have received hasn’t been sufficient to enable them to determine who was the actual person behind the applicant. That is quite unusual,” he said.

Since January 2016 the OIO has approved 201 deals and rejected just three.

NEW ZEALAND FIRST

The ruling marks the first big foreign investment decision under the new Labour-led government, which came to power in October by forming a coalition with the populist New Zealand First party led by Winston Peters.

The tie-up between the traditionally center-left Labour Party and nationalist NZ First represents an abrupt shift in the country’s formerly open-door investment policy.

Peters, who is now deputy prime minister, said earlier this year that he wanted the deal blocked.

The deal was originally brokered in January as Australia’s biggest banks sought to offload assets to meet new capital requirements.

ANZ has since ramped up its divestment program, including the sale of its A$2.85 billion ($2.2 billion) insurance unit to Zurich Insurance (ZURN.S), making the HNA deal less critical.

“While the sale agreement between the parties remains in place, unless HNA successfully overturns the OIO decision, the sale will not proceed,” ANZ New Zealand Chief Executive David Hisco said in a statement.

Hisco said there was no immediate requirement to sell the business given ANZ’s strong capital position, and that the regulator’s decision would not impact the A$1.5 billion buy-back announced on Monday.

Reporting by Charlotte Greenfield in Wellington and Paulina Duran in Sydney; Additional reporting by Adam Jourdan in Shanghai and Jennifer Hughes in Hong Kong; Writing by Jonathan Barrett; Editing by Stephen Coates

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