2011-07-30 10:17

NEW YORK - HNA Group Co, the airline and hotel operator controlled by China's Hainan province, is in exclusive talks to buy a shipping-container lessor co-owned by General Electric Co, according to a person with knowledge of the matter.

HNA may reach a deal within a week if the lessor GE SeaCo opts to proceed with the sale, said the person, who spoke on condition of anonymity because the talks are private. The price under discussion values GE SeaCo at more than $1 billion, or about $2.5 billion including debt, the person said.

"The fundamentals for container leasing are pretty good right now," said Art Hatfield, a Morgan Keegan & Co analyst in Memphis, Tennessee. "Despite the fact that there's too many ships out there, there's a fairly tight container market."

A successful bid for SeaCo, the world's fifth-biggest container lessor, would be the latest demonstration of Chinese companies' appetite for global acquisitions. Purchases in the past year include a $2 billion Norwegian chemicals operation and a General Motors Co parts division.

HNA prevailed in an auction that also drew interest from Textainer Group Holdings Ltd, the largest container lessor, and the private-equity firm Kelso & Co, according to people with knowledge of those companies' interest.

Strategic alternatives

"As we stated previously, we continue to work through our strategic alternatives process, and really have nothing further to add," said Dori Abel, a spokeswoman for the GE Capital unit at Fairfield, Connecticut-based GE.

No one authorized to speak to the press was available at HNA before regular business hours on Friday. Textainer's Chief Financial Officer Ernest Furtado confirmed that the company is no longer involved in the bidding. George Matelich, a principal at Kelso, declined to comment about the SeaCo sale.

Led by Chairman Chen Feng, HNA began as the province's regional airline and was once known as Hainan Airlines Co, according to its website. It bought other carriers and is now China's fourth-largest aviation company, the website says. HNA's operations include airports, hotels and department stores.

In May, HNA agreed to buy a 432 million euro ($619 million) stake in a Spanish hotel chain. The company said this month it may bid for Hochtief AG's airport-operating unit, bringing it control of airports in Hamburg, Sydney, Budapest and Athens. It also agreed to invest in a Turkish cargo carrier, ACT Airlines Inc.

Joint venture

GE Capital formed Barbados-based GE SeaCo as a 50-50 joint venture with Sea Containers Ltd in 1998. Sea Containers, based in Hamilton, Bermuda, later filed for bankruptcy and emerged in 2009, with control of the company in the hands of former creditors.

Sea Containers' successor, SeaCo Ltd, confirmed in February that an investment bank had been hired to review "strategic alternatives" for GE SeaCo. Deutsche Bank AG is the investment bank, and it is also working to assemble financing for HNA's bid, said one of the people with knowledge of the matter.

With a fleet of 950,000 twenty-foot equivalent units (TEU), GE SeaCo is the world's fifth-largest, according to a ranking included in a Textainer regulatory filing. Textainer, based in Bermuda and run from San Francisco, has 2.3 million TEU.

In May, another of the top leasing companies changed hands when Chicago's Pritzker family sold Triton Container International Ltd to a the private-equity companies, Warburg Pincus LLC and Vestar Capital Partners. Bermuda-based Triton is the second-biggest container lessor, according to the Andrew Foxcroft ranking in the Textainer document.

Freight demand

Container lessors are benefiting from growing freight demand, limited supply and rising prices for new units. The cost of a new-cargo box rose to a record this year, according to the World Shipping Council, a Washington-based trade group.

Higher prices are prompting shippers to lease rather than buy, said Brian Sondey, chief executive officer of the lessor TAL International Group Inc, during a conference call in April.

Bloomberg News