Collapse of HNA's Swiss IPO Sets Back $16 Billion Garage Sale
(Bloomberg) -- HNA Group Co.’s scrapped initial public offering of its Swiss airline caterer dialed up the pressure for the embattled conglomerate as it seeks to raise about $16 billion during the first half of the year to reduce one of the biggest debt piles in corporate China.
The IPO of Gategroup Holding AG would have raised between $917 million and $1.4 billion for HNA but investors balked at the price and the lack of clarity as to what the Chinese group would do with its remaining stake. If the deal had gone according to plan, it would have put HNA about halfway past its first-half disposal target.
The flurry of sales have reversed the situation up until early 2017, when HNA was at the forefront of a multiyear buying binge by Chinese conglomerates -- think Anbang Insurance Group Co., Dalian Wanda Group Co. and CEFC China Energy Co. -- who were gobbling up everything from New York’s Waldorf Astoria hotel to large stakes in Deutsche Bank AG. The seemingly insatiable appetite for trophy assets ended last year after the Chinese government stepped up scrutiny of "irrational" investments and borrowing costs soared.
Gategroup is the biggest asset sale that’s gone wrong but dozens of HNA assets have been sold or put on the block in recent months, enough for a bird’s eye view of one of the biggest corporate garage sales in Asia. A handful got divested at below purchase prices but most of the assets were unloaded at above their original cost, according to data compiled by Bloomberg.
For HNA, which started out as a fledgling regional airline, its empire-building years were fueled by one of biggest piles of debt ever accumulated by a Chinese non-financial company. That ultimately came back to bite the group and forced it to sell billions of dollars of assets.
Here’s how the disposals are going:
More Than $14 Billion in Assets Are Accounted for
Ever since Bloomberg first reported in late January that it was planning to sell 100 billion yuan ($16 billion) during the first half of the year, hardly a week has gone by without news of an HNA disposal. The company has sold at least $6.7 billion in properties or stocks -- nearly all of them this year -- and $7.5 billion of assets are up for sale, according to figures compiled by Bloomberg. A person familiar with the matter said in January that HNA’s proposal called for 80 percent of the total targeted disposals to be executed in the second quarter. Based on that, the company could be ahead of schedule.
There’s a Lot More to Be Sold
Still, the group has $9.3 billion in assets that need to be sold to meet its first-half target, according to figures compiled by Bloomberg. Why the urgency? HNA warned creditors in January that it could face a liquidity crunch of about $2.4 billion this quarter, though liquidity pressures are expected to ease in the second quarter, people familiar with the matter have said.
The bulk of the assets for sale are real-estate properties in the U.S., U.K. and China, with the biggest one being the 245 Park Ave. tower it bought for $2.2 billion last year, one of the highest prices ever paid for a New York office building. Some disposals can’t be quantified, such as the upcoming initial public offering of Swissport, the world’s largest provider of ground handling and cargo services at airports, which HNA bought for about 2.7 billion Swiss francs ($2.9 billion) in 2016.
It’s Neither Been a Windfall Nor a Fire Sale
Despite the disposals coming under pressure, HNA has seen gross gains -- excluding dividends and debts assumed -- of almost $1 billion, with the biggest one being the Chinese group’s sale of its Hilton Grand Vacations Inc. shares, which were sold at about $539 million above their purchase price. There have been a handful of exceptions such as the unloading of Dorian LPG Ltd. stock at about 40 percent below the purchase price, according to data compiled by Bloomberg. HNA also trimmed its stake in Deutsche Bank, which hasn’t been a profitable investment -- it’s this year’s worst performer on the Stoxx 600 Banks Index.
Some deals, such as the $2.8 billion sale of three plots of land in Hong Kong, were sold at 12 percent to 15 percent higher than what HNA paid for after factoring in financing expenses and other sunk costs, the company probably just broke even on the development, according to according to Raymond Cheng, a property analyst at CIMB Securities Ltd.
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