China's Scrutiny of HNA Leads to Record Refinancing Cost

(Bloomberg) -- HNA Group Co., which once symbolized China’s insatiable appetite for overseas assets, sold the country’s most expensive short-term dollar bond ever as it tries to refinance a wall of maturing debt amid government scrutiny.

The company priced a 363-day bond at 8.875 percent, after initially marketing it for about nine percent, according to a person familiar with the offering. Proceeds from the $300 million sale will be used to refinance offshore debt, said the person, who isn’t authorized to speak publicly and asked not to be identified. The previous record was Herun Holdings Ltd.’s eight percent notes sold in September, according to data compiled by Bloomberg.

The sale is the latest indication that HNA’s $40-billion-plus acquisition spree , where it became the largest shareholder in companies such as Deutsche Bank AG and Hilton Worldwide Holdings Inc., is catching up to the company as it accumulated about $28 billion in short-term debt. HNA’s interest expenses doubled in the first half, when it paid more than any other non-financial company outside of the U.S. and Brazil, according to data compiled by Bloomberg.

“As an investor, the fact that the company is willing to pay such a high rate for a bond with a year maturity should give one pause,” Todd Schubert, head of fixed-income research at Bank of Singapore Ltd.

Read more: HNA gets regulatory clearance for couple of deals

The yield on its $473 million 8.125 percent notes due 2018 rose 52 basis points to 8.9 percent, the biggest increase since Sept. 14. It also has a 1.25 billion yuan ($189 million) Dim Sum bond coming due on Nov. 13, according to data compiled by Bloomberg.

China's Scrutiny of HNA Leads to Record Refinancing Cost

Bonds due in a year or less, which do not need government approvals, started to appear earlier this year after the National Development and Reform Commission started withholding approvals for offshore debt for some sectors. A representative of HNA couldn’t immediately comment.

HNA was among conglomerates that spearheaded the record $246 billion in outbound acquisitions announced by Chinese companies last year, according to data compiled by Bloomberg. Then the government began restricting capital outflows to protect the yuan from depreciating further. 

Now, costs are piling up. HNA’s interest expenses more than doubled to a record 15.6 billion yuan as of the end of June, exceeding the company’s earnings before interest and taxes. Its short-term debt ballooned to 185.2 billion yuan, exceeding its cash-pile.

China's Scrutiny of HNA Leads to Record Refinancing Cost

The bond offering comes days after HNA’s flagship carrier, Hainan Airlines Holding Co., sold a $300 million 364-day dollar note at a yield of 6.35 percent, higher than the 5.5 percent it offered for a short-term note in June. The carrier has applied for an offshore bond issuance quota from the NDRC, according to people familiar with the matter last Thursday.

A unit of HNA is also seeking a loan of about HK$6.4 billion ($820 million) to help refinance borrowings related to a land purchase in the former Kai Tak airport area in Hong Kong.

©2017 Bloomberg L.P.