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Goldman Sachs suspends HNA work on due diligence concerns

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Goldman Sachs suspends HNA work on due diligence concerns

Asia-Pacific Companies

Goldman Sachs suspends HNA work on due diligence concerns

US investment bank determines acquisitive Chinese conglomerate falls short of its standards

© Reuters

Goldman Sachs has suspended work on a planned fundraising for a unit of HNA Group after the US investment bank determined the acquisitive Chinese conglomerate did not meet its due diligence standards.

The decision is the latest blow for HNA, which started off as a small domestic airline operator and has transformed into a sprawling group with interests ranging from financial services to aviation and leisure.

In the past three years, it has spent more than $40bn on global acquisitions but has been dogged by questions over who owns it and a Beijing clampdown on deal-hungry private Chinese conglomerates.

Goldman bankers began internal due diligence checks on Pactera, HNA’s Beijing-based IT outsourcing business, last month, after being awarded the mandate to manage a pre-float funding round for the company. The bank was also expected to lead the unit’s eventual initial public offering.

But Goldman was forced to notify the company that it had not satisfied the bank’s due diligence standards and they would have to halt work. It also informed investors it had introduced to Pactera of its decision.

The news, which was confirmed by people aware of the bank’s decision, was first reported by Reuters. HNA bought Pactera from Blackstone, the private equity group, last year in a deal worth $675m.

“Pactera has not started the formal IPO process, and not appointed any investment bank to assist in an IPO,” said HNA.

“HNA and Goldman Sachs have always had a strong working relationship, and currently all joint projects between the two companies are functioning normally.”

Goldman is not the only bank to have struggled to work with HNA. Over the summer, Matthew Koder, Asia head of Bank of America Merrill Lynch, told staff in a leaked email to avoid working with HNA because of concerns about its corporate structure and business model.

In July, HNA attempted to shed light on its ownership by saying that it had transferred a near 30 per cent stake from a little-known Chinese shareholder to a newly formed foundation in the US.

At the time, Adam Tan, HNA group chief executive, told the Financial Times that the company’s official shareholding structure until then did not reflect its true ownership. He also said he had written to Brian Moynihan, BofA’s chief executive, to ask about Mr Koder’s email.

“I said, what happened? I don’t know you. Why have you people said very bad things about us?” Mr Tan said he wrote. “This is ridiculous. But anyway BofA is still one of the great banks in the whole world. It’s first class. OK, maybe second class.” BofA had in the past done very little work with HNA, he said, and cited the company’s close relationship with banks including JPMorgan Chase and UBS.

During its acquisition spree HNA has taken a 9.9 per cent stake in Deutsche Bank and 25 per cent in the Hilton hotel group.

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