July 30, 2018 / 4:45 AM / 10 months ago

UPDATE 3-China HNA's Qianhai exchange exits retail financial products business

* Move comes as HNA faces govt scrutiny, liquidity problems

* HNA to supervise retail fund payback, guarantee investment funds

* HNA employees must wait 2 yrs or more for full repayment -source (Adds analyst comment; background on HNA’s stakes)

BEIJING, July 30 (Reuters) - Qianhai Air & Shipping Exchange, part of China’s debt-laden conglomerate HNA Group, said it will exit the retail financial products business from Monday to comply with a government order and a changing business focus for the group.

The exchange helps airlines and shipping projects obtain financing by finding investors for their wealth management products that, according to its website, offer “safe and reasonable returns”.

It said in a statement on Monday that corporate borrowers have been informed to repay their debt to the retail investors. HNA Group will supervise the fund repayments for retail investors and guarantee all investment funds, it said. It did not disclose the outstanding amount.

However, HNA employees who invested in wealth management products sold through the exchange will have to wait for at least 24 months to get their money back in full, according to an exit plan reviewed by Reuters and verified by an HNA employee.

The repayments to the HNA employees will come in the form of semi-annual instalments with an annualised interest rate of 10 percent, according to the plan. The first payback will be on Feb. 28 next year.

“Online wealth management platforms usually offer short-term products, typically within one year. It is quite rare to see repayments being made over two years,” said a Hong Kong-based finance sector analyst, who declined to be named due to the sensitivity of the issue.

The HNA employee bought one of the products in May, and according to the terms seen by Reuters, full repayment was due on August 30.

A spokeswoman for HNA declined to comment beyond what the Qianhai statement said.

Qianhai’s move comes as the sprawling HNA, known for its eye-popping $50 billion acquisition spree that saw it accumulate assets ranging from a stake in Deutsche Bank AG to high-profile overseas properties, shifts focus to its core airlines and tourism businesses by unloading assets and shareholdings.

The owner of Hainan Airlines Co has agreed to sell $10 billion in real estate. It has also sold its stake in Hilton Worldwide Holdings Inc and trimmed its Deutsche Bank stake.

Capital control restrictions and a government order to rein in leverage and non-core businesses have also been weighing on HNA’s deal activity, and it has faced push-back in several countries due to concerns about its ownership structure.

Chinese banks have privately and publicly voiced concern after HNA failed to repay some obligations, including aircraft lease payments, and as surging debt drove up the cost of the group’s short-term fund raising to new highs.

HNA has missed payments on its wealth management products previously due to the liquidity problem, said the HNA employee, who declined to be named due to the sensitivity of the matter.

The Qianhai exchange was founded by HNA Group in 2014 with approval from the city government of Shenzhen. It has 1.37 million retail users and 1,243 institutional users. The cumulative transaction volume on the exchange has exceeded 160 billion yuan ($23.41 billion), according to its website.

Its partners include China’s largest banks led by Industrial and Commercial Bank of China Ltd and Bank of China Ltd and state-owned and private conglomerates such as oil major China National Petroleum Corp and tech giant Alibaba Group Holding Ltd .

In Monday’s statement, Qianhai exchange said it will focus on airline asset trading and fintech in the future. ($1 = 6.8345 Chinese yuan renminbi) (Reporting by Beijing Monitoring Desk, Kane Wu, Shu Zhang; Editing by Muralikumar Anantharaman)

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