Sep 22, 2020 05:50 AM

China’s Huazhu Eyes Foreign Deals as Global Brands Languish

Photo: Bloomberg
Photo: Bloomberg

(Bloomberg) — Shanghai-based Huazhu Group Ltd., China’s biggest hotel operator, is moving to acquire foreign hospitality chains as the rapid recovery of the country’s domestic travel market gives it an advantage over ailing global rivals.

While major hotel brands like Marriott International Inc. and Hilton Worldwide International Inc. remain hobbled by the halt in travel amid a resurgence of infections in Europe and the U.S., Huazhu’s business has bounced back to pre-pandemic levels. In the second quarter, Huazhu’s occupancy rate reached 69%, compared with Hilton’s 22% and Marriott’s 14%.

With the virus largely eradicated in China, business travel has recovered and domestic leisure tourism is growing, buoyed by consumers voyaging locally since overseas vacations are nearly impossible amid the government’s virus containment measures. China is the only major economy projected to grow in 2020, although at a slower pace than before. This divergence with the rest of the world is starting to play out on the corporate landscape.

While its global competitors are cutting jobs and posting declining revenue, the U.S.-listed Chinese operator has just raised HK$6.07 billion ($783 million) from a secondary listing in Hong Kong. It started trading on Nasdaq in 2010.

“We won’t hesitate to take action if there are proper acquisition targets as operators with global presences will face challenges in the next one or two years amid virus and geopolitical tensions,” Group President Jin Hui said in a Bloomberg interview last week. “With capital raised from the IPO, we are able to seek partnerships at any level.”

Huazhu’s grand ambitions are a sign of how some of China’s businesses see an opportunity to gain ground on their embattled foreign rivals in the pandemic’s wake. It aims to be the world’s biggest hotel chain both in terms of market value and number of hotels in five to 10 years, Jin said.

Still, Chinese companies bidding for foreign acquisitions may find a hostile reception, given rising tension between the Asian giant and countries including the U.S., Australia and Canada over a range of issues from trade to human rights. In recent months, geopolitical opposition to China has extended from sensitive industries like telecommunications and microchips to consumer companies. Last month, China Mengniu Dairy Co. had to scrap plans to buy Kirin Holdings Co.’s Australian beverage unit after being told the deal would most likely be blocked by Canberra.

The pandemic is nevertheless providing an unexpected boost to certain consumer sectors on the mainland. Not only is life in China’s megacities largely back to normal, the inability of consumers to travel and shop abroad has transferred billions of yuan of spending back to local companies. Luxury consumption has surged on the mainland while holidays to local destinations like southern island Hainan are booked out.

Huazhu now plans to open more than 1,600 new hotels this year, with a target of 10,000 hotels by 2023, up from 6,000 now, Jin said. For the early-October Golden Week national holiday — a peak vacation period for Chinese consumers — bookings look equal to last year’s, he said.

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