FINANCE: HNA Flies to Australia, ICBC to Eastern Europe

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Bottom line: HNA’s Virgin Australia investment reflects its aspirations to build a global travel empire, while ICBC’s new European infrastructure fund reflects its attempts to be commercial while also supporting central government initiatives.

HNA invests in Virgin Australia

A couple of headlines are spotlighting the different approaches of 2 of China’s leading global investors, led by a big new investment in airline Virgin Australia (Sydney: VBA) by HNA Group. On the other side of the globe, ICBC (HKEx: 1398; Shanghai: 601398) is establishing a major new European infrastructure fund, in what looks like a far more politically-motivated move by China’s leading lender. Both investments reflect China’s growing role on the global investing stage, though each represents the rapidly diverging priorities between the state-run and private sectors.

Let’s begin with HNA, which is actually a state-run entity but behaves more like a private investor due to its base on the freewheeling Hainan island, one of China’s largest special economic zones. HNA’s investment is less noteworthy for its actual size, and more for the underlying strategy as it tries to assemble a global empire centered on the travel services business.

In its latest tie-up, HNA Aviation will pay A$159 million ($114 million) for 13 percent of Virgin Australia, the Australian unit of Britain’s Virgin Airlines. (English article; Chinese article) HNA aims to eventually increase that stake up to 20 percent. HNA Aviation is buying the stake through a private placement, purchasing Virgina Australia shares at a premium of about 7 percent to their last close before the deal was announced.

One of HNA’s oldest assets is Hainan Airlines (Shanghai: 600221), one of China’s most commercially-focused carriers. The group has also made a number of travel-related investments both at home and abroad over the last few years. HNA was in separate headlines this week for one of those investments, as an executive discussed the Chinese company’s plans to transform its recently purchased European hotel operator Rezidor into a “hotel chain on the global level.” (English article; previous post)

Infrastructure Investment

Meantime, ICBC was also busy in Europe, announcing its establishment of a 1 billion euro ($1.1 billion) fund to invest in Eastern and Central European infrastructure projects. (company announcement; English article; Chinese article) ICBC is quite explicit in its announcement, saying its newly formed CEE Financial Corp will assist in development of projects under China’s “One Belt, One Road” initiative to develop infrastructure in Asia and Europe.

ICBC said CEE Financial will target infrastructure projects in Central and Eastern Europe, and that it expects those investments to generate “reasonable” returns for the bank. But anyone who follows China and its big state-run lenders will know that the “One Belt, One Road” initiative is a pet project of Chinese President Xi Jinping and Premier Li Keqiang, meaning this particular investment has a heavy political element.

That’s not to say that this new fund won’t find some good projects to finance and earn good returns. I’m actually a relatively big fan of ICBC, since it’s one of China’s more commercially focused big state-run banks and has made some globally savvy acquisitions over the last 5 years. This latest move actually looks at least partly commercially focused, since it’s targeted at European markets that are more likely to yield positive results than Central Asian markets that are also a key part of “One Belt, One Road”.

At the same time, establishment of this new fund demonstrates that no matter how commercial ICBC wants to become, it also realizes that Beijing is its major stakeholder. Accordingly, it knows it needs to make decisions that will also help to support the central government’s priorities. Such a position isn’t really tenuous over the long-term as it will create too many internal conflicts. But I have to at least commend ICBC for trying to make the most commercially sensible decisions within the government-imposed agendas that it’s often forced to execute.

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