Billionaire Chen’s HNA Buys Virgin Australia Stake in Deal Spree

(Bloomberg) -- HNA Group, founded by billionaire Chen Feng, is purchasing a stake in Virgin Australia Holdings Ltd., as the Chinese conglomerate adds to its more than $91 billion of assets worldwide.

HNA, owner of Hainan Airlines Co., will spend about A$159 million ($114 million) for a 13 percent stake and plans to increase it to about 20 percent over time, the Australian carrier said Tuesday. Brisbane-based Virgin Australia already counts Air New Zealand Ltd., Singapore Airlines Ltd. and Etihad Airways PJSC as its shareholders, besides Richard Branson.

Shares in the unprofitable Australian carrier jumped the most in three weeks in Sydney trading Tuesday after it announced HNA was purchasing a stake. Air New Zealand, the biggest investor in Virgin Australia, in March said it may sell its 26 percent stake. That potential exit stoked speculation that Singapore Air would snap up the stake to stop an less-welcome foreign airline from muscling in.

“Singapore are supportive of this arrangement,” Virgin Australia Chief Executive Officer John Borghetti said in an interview. “But clearly the way that China is growing, direct services in and out of China are very important.”

Singapore Air said in a statement its stake will decline to 20.1 percent, should the transaction be completed. It didn’t offer further comments. A spokeswoman for Air New Zealand at the airline’s media office declined to comment on Virgin’s announcement. HNA didn’t immediately respond to a phone call seeking comment.

Virgin Australia shares rose as much as 7.1 percent to 30 Australian cents, matching HNA’s purchase price for the shares. While the purchase is at a 7.1 percent premium over the stock’s close Monday close in Sydney, it’s still 46 percent less than the 55.5 cents the shares reached in April last year. The Chinese group also signed flights and code-share alliance with Virgin.

The deal needs Australian competition and Chinese regulatory approvals.

Air New Zealand isn’t represented on Virgin Australia’s board and wasn’t consulted about the HNA investment, Borghetti said.

Not Enough Money

The investment generates fresh funds for Virgin during a capital review, after Morgan Stanley said the Australian airline needs a further A$700 million in financing.

“It’s hard to say whether this is a big enough capital injection to change their fortunes,” said Daniel Mueller, an analyst at Forager Funds Management Pty in Sydney.

Billionaire Branson, whose Virgin Group owned about a 10th of Virgin Australia before HNA’s deal, said last week that the Air New Zealand’s stake had attracted several potential buyers.

Chen, who two decades ago walked the aisle of his startup Hainan Airlines’s lone airplane serving refreshments, has bought aviation and transport-related assets from Switzerland to Singapore this year in multi-billion-dollar deals as he takes his hotels-to-supermarkets group overseas.

To read about Chen’s deal juggernaut, click here.

Air France said yesterday that it’s in talks to sell half of its catering unit Servair to HNA. Last month, HNA agreed to buy Swiss airline-catering company Gategroup Holding AG for about $1.4 billion, followed by a deal to purchase closely held Carlson Hotels Inc., gaining hospitality brands including Radisson and Park Plaza.

HNA is also in exclusive talks with the biggest shareholder of CWT Ltd. for a potential acquisition of shares in the Singapore-based logistics company.

(Updates with comment from Virgin CEO in seventh paragraph.)

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net. To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Dave McCombs

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