HNA Sends Open Letter to NH Hotel Group Shareholders

Questions Validity of NH Hotel Management Contract with Hesperia

Reiterates Call for Appointment of New Board Chair and Initiation of Search for Qualified CEO

MADRID--()--HNA Group ("HNA") today issued the following letter to NH Hotel Group (“NH Hotel”) (BME:NHH) shareholders:

Dear Fellow Shareholders,

HNA is deeply concerned about the contract that the NH Hotel Board of Directors, controlled by Oceanwood’s Alfredo Fernandez, is entering into with Jose Antonio Castro, the owner of Hesperia.

NH Hotel manages 28 hotels for Hesperia, many of which are badly in need of renovations that Hesperia cannot afford. For more than a year, NH Hotel’s previous CEO Federico Gonzalez attempted to negotiate a management contract with Mr. Castro that would provide €24 million of capital for the required investments, to be paid over a period of three years. In return, Hesperia would have been obligated to have NH Hotel manage the hotels under a long-term management contract.

These terms were approved by NH Hotel’s previous Board, which also insisted that the contract provide NH Hotel’s non-Hesperia shareholders with adequate protections by guaranteeing that:

1. The cash payments to Hesperia were used to renovate the hotels, not to service Mr. Castro’s substantial outstanding debt which comes due in December 2017.

2. Mr. Castro could not terminate the management contracts before NH Hotel recouped its €24 million payment to Hesperia through appropriate and financially secure termination penalties.

3. Mr. Castro did not receive an accelerated lump-sum payment at the expense of NH Hotel’s non-Hesperia shareholders through a less stringent early termination provision upon a change of control (such as a transaction with HNA).

4. Restricted Mr. Castro’s ability to receive payments from NH Hotel and then terminate or default on the contract in order to “sell” it to a new third-party, thereby profiting the same management contract twice.

By repeatedly rejecting these terms, Mr. Castro created an impasse with NH Hotel’s previous Board that could only be solved by taking insurgent action to reconstitute the Board and empower a more amenable Chair, Alfredo Fernandez.

Based on the recent disclosure of a new management contract between NH Hotel and Hesperia, it appears that Mr. Fernandez has fulfilled his end of the bargain by rubber stamping a sweetheart contract that rewards Mr. Castro for his support of Mr. Fernandez and Oceanwood.

In contrast to the shareholder protections insisted by NH Hotel’s previous Board, the new management contract with Hesperia:

1. Pays Hesperia €31 million, substantially more than the amount unanimously approved by the prior Board and supported by prior management.

2. Substantially dilutes the change of control provisions to Mr. Castro’s advantage by stipulating broadly that if HNA were only to consider a transaction with NH Hotel that Mr. Castro would be allowed to terminate the management contract early and sell the it to another hotel company without any clawback provisions requiring him to repay the €31 million to NH Hotel.

3. Allows Mr. Castro to “secure” the relatively limited termination penalties by pledging a minority share of his majority share ownership in several real estate assets purportedly “owned” by Mr. Castro. These real estate assets have no value as Mr. Castro, as majority share owner, can prevent their sale – or potentially borrow against them – assets to the point of destroying all equity value.

Further, we understand that virtually all of Mr. Castro’s assets, including his NH stock and any real estate holdings, are already pledged to Banco Santander which owns the loan coming due in December 2017. Given that Mr. Castro recently released 50% of his NH Hotel shares to Santander in order to cover part of his debt repayment, and the fact that the value of his remaining stake in NH Hotel has decreased significantly along with NH Hotel’s share price, we believe that his debt is greater than the value of his NH Hotel shares. Pledged as collateral, his net equity in his real estate assets is already unlikely to have any value.

In a letter sent to the Board prior to the disclosure of the new contract, I asserted that the Board could not have possibly completed a comprehensive credit analysis on Hesperia as inadequate information had been made available for such an analysis to be conducted. I asked the Board to retain an independent financial advisor to conduct this analysis and provide a fairness opinion to NH Hotel non-Hesperia shareholders (not the Board) before entering into any new contract with Hesperia.

As a result of the letter, the contract included a new provision providing for due diligence to be performed by NH Hotel. This is a step in the right direction, but it comes too late and falls too short. HNA therefore reiterates its call for the following:

  • An independent third-party review of the contract.
  • The delivery of a fairness opinion to NH Hotel shareholders exclusive of Hesperia and Oceanwood.
  • The elimination of contractual terms that serve only to enrich Mr. Castro at the expense of the shareholders.

In addition, we have communicated directly to the Board our request that they undertake:

  • The appointment of a Chair acceptable to a broader spectrum of the shareholder base, including HNA.
  • A formal search for a new CEO. We repeat again our assertion that Mr. Fernandez has usurped the role of CEO. It is exceedingly rare for a non-executive chair to spend every day on-site interacting with members of management. If it walks like a duck and quacks like a duck, it is most likely a duck. This particular duck has not been through any standard CEO vetting process, has no relevant operating or hotel experience, and does not have the faith or confidence of at least 29.5% of the shareholder base.

To put it bluntly: The process of reconciling the interests of HNA and the non-HNA shareholders cannot begin until the corporate governance problem at NH Hotel is solved.


Charles Bromwell Mobus, Jr.

Former Chair-of-the-Board

NH Hotel Group

About HNA Group

HNA Group is a global Fortune 500 company focused on Tourism, Logistics and Financial Services. Since its founding in 1993, HNA Group has evolved from a regional airline based on Hainan Island into a global company with over $90 billion of assets, $30 billion in annual revenue and an international workforce of nearly 200,000 employees, primarily across North America, Europe and Asia. HNA’s tourism business is a fast-growing, vertically-integrated global player with market-leading positions in aviation, hotels and travel services. HNA operates and invests in nearly 2,000 hotels with over 300,000 rooms across major markets, and has 700 aircraft carrying over 90 million passengers to 260 cities worldwide. For more information, please visit


Sard Verbinnen & Co
Michael Henson
+44 (0) 20 3178 8914

HNA Group