UPDATE: HNA Group has changed the conditions of its purchase of a stake in Spain's NH Hoteles, cutting the share price of a capital increase to €5.35 per share from an original €7 per share, the Spanish hotel group said 17 October. HNA cited the drop in NH Hoteles' share price as the reason behind the change of terms.
MADRID—Spain’s NH Hoteles is eagerly looking forward to the benefits of its strategic agreement with Chinese airline and tourism group HNA, which purchased a 20% stake in the Spanish company for €431 million (US$594 million).
Under the agreement, the two groups are to pursue a joint venture for managing hotels in China, complementing NH’s approach of using low-risk strategies, such as management of third-party owned hotels.
The joint venture will benefit from the management, loyalty and booking systems of NH, and use the NH Hotels brand name in China and would be supported by the knowledge and ability to gain local access of HNA Group in identifying the best locations for hotels, local management teams and general logistics of the group in the Chinese market.
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Mariano Pérez Claver |
NH, with 400 hotels in 25 countries mostly in Europe, concentrates on urban, 4-star properties. NH president Mariano Pérez Claver sees China’s booming economy, surging middle class and growing demand for reliable, quality hotels serving business travelers as a natural market for his company.
“Although we’re mostly active in Europe, we believe our urban, 4-star model will fit perfectly in this huge market, the growth of which coincides perfectly with our plans,” Claver told a hotel management conference in Madrid.
With 60 cities of more than a million inhabitants in China, NH is confident that with the assistance of its partner, which operates 50 hotels there, the venture will be a success.
“We have a team looking at which of the current HNA hotels are up to our standards and which are not, but it’s not yet clear when the first will open under the NH brand,” a company spokeswoman said.
“But we’re still waiting for final approval of the (partnership) by the Chinese authorities. The deadline is late October, but it could happen tomorrow,” she added.
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Financial help
The spokeswoman denied Spanish press reports citing sources close to the operation that HNA delayed closing the deal to October from the initial date in late August because it was trying to negotiate a cheaper price for the purchase of the NH shares, which was agreed at €7 (US$9.45) a piece.
“In operations like this worth so much money, it’s logical that the authorities want to analyze it very carefully and that’s the reason for the delay. Nothing more,” she said, adding the income will help the Spanish group’s financial position.
NH will use some of the money from the deal to ease its debt of €1.1 billion (US$1.5 billion) borrowed from a syndicate of banks in 2007 when the hotel industry was booming.
Analysts also say that with the cash infusion, the Spanish group can cease selling off its properties, which it began to do in 2009 as the sector’s fortunes went into free fall because of the economic crisis. In two years, the chain unloaded 12 hotels for a total of €273 million (US$373 million).
A market foothold
Announced in May, the NH-HNA equity purchase came just months after another Spanish hotel group, Sol Meliá, said it entered into a strategic alliance with China’s Jin Jiang International Hotel Management Company as the first step in a larger partnership.
“These agreements between Spanish chains and Chinese partners make a lot of sense,” said Juan Gallardo of BRIC Global, a Barcelona-based hotel real-estate and management consultancy. “In NH’s case, it enters into a huge market in a partnership with a strong local player.”
And as visitor traffic from China to Spain grows, NH will benefit from an influx of Chinese visitors familiar with its brand. Under the agreement, HNA’s network of travel agencies and tour operators will channel Chinese travelers bound for Spain and Europe to NH properties.
“Middle-class Chinese are looking to Spain as a cultural destination attracted by the offerings in Madrid, Barcelona and Seville as most Chinese are not great beach goers,” Gallardo says. “And they have a lot of spending capacity.”
Xu Jing, the Asia/Pacific regional director for the Madrid-based United Nations World Tourism Organization, shared a similar sentiment.
“China’s dynamic economic growth means more Chinese are coming to Spain. On their first visit to Europe, the Chinese hit the big three—London, Paris and Rome—but on their second visit they’re increasingly attracted to the Mediterranean countries like Greece, Portugal and, of course, Spain,” he said.
The Spanish government, which for years has been promoting the country’s abundant cultural attractions in a bid to lessen the tourism industry’s reliance on the sea and sun sector, is eagerly pursuing the Chinese yuan.
Hoping to attract 1 million Chinese visitors to the country by 2020, Spanish authorities are easing the visa process and actively promoting the destination through familiarization trips for Chinese travel writers and tour operators.
Several Spanish regions, such as Andalusia, the Canary Islands and Catalonia, also have their own tourism offices in China.
And, Jing noted, China’s biggest vacation season is the New Year’s holiday, which falls in January or February, just when Spanish hotels are virtually empty, “so off-season Chinese tourism is a big plus for the local hospitality industry.”