Regulators in Hong Kong have launched an investigation at one of the city’s Chinese banks, one of several probes into the offshore financing activities of some of China’s most acquisitive conglomerates.

The Hong Kong Monetary Authority dispatched a team to China Citic Bank International to probe the overseas borrowing activities of companies such as airlines-to-finance group HNA and Zhonghong Zhuoye, which once owned a controlling stake in SeaWorld Entertainment, according to several people with knowledge of the matter.

The probe follows investigations by the Chinese government in 2017 that focused on a similar list of companies in the wake of an unparalleled overseas spending spree.

Starting in 2015, several Chinese companies with obscure origins began buying up tens of billions of dollars in assets overseas and taking on massive debts.

As Chinese regulators tightened the ability of the companies to move cash offshore at the end of 2016, many groups looked for access to credit from banks in Hong Kong, a jurisdiction free of the mainland’s onerous capital controls.


The value of HNA’s asset sales in the past two years

At the time, Citic Bank International was one of several financial institutions that sought to rapidly expand its corporate lending business through exposure to such groups. Other lenders included state-owned Huarong Asset Management.

Huarong and Citic Bank International shared several large acquisitive clients, such as HNA, property developer Zhonghong and Ningxia Tianyuan, the world’s largest manganese producer.

The fates of such companies have followed similar trajectories.

In the two years following the outbound investment boom, HNA has been forced to sell down more than $20bn in global assets. Zhonghong, which attempted to buy US elderly care company Brookedale for nearly $4bn, was delisted from the Shenzhen stock exchange due to poor financial performance.

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Huarong has been the target of an ongoing investigation in Hong Kong and in China since mid-2018 and has greatly downsized since then. Its former chairman, Lai Xiaomin, was detained last year and was charged by a Chinese court earlier this year with bribery, corruption and bigamy.

Citic Bank International, an offshore unit of state conglomerate Citic Group, has since downsized its ambitions to grow its investment banking capabilities, people familiar with the matter said.

The work by the HKMA team at Citic Bank International started last year and continued for several months. The regulator was accompanied by auditors from a Big Four accounting firm.

The HKMA said it could not discuss its supervision work and declined to comment on the matter. Citic Bank International said it would not comment on an individual case. HNA, Zhonghong and Ningxia Tianyuan did not respond to requests for comment.

It is unclear if the probe is continuing or has concluded but the work by Hong Kong’s de facto central bank is one of several similar investigations at Hong Kong-based lenders seeking to better understand the offshore borrowing activities of a number of Chinese conglomerates, people familiar with the situation said.

Via Financial Times