(Bloomberg) -- HNA Group Co. Chairman Chen Feng will step up his role in managing the liquidity challenges at one of China’s most indebted companies after the sudden death of his No. 2 executive this week.
Chen will assume the duties of Wang Jian, the late 57-year-old co-chairman who died while sightseeing in a French village this week, the company said in a statement Friday. Adam Tan will continue to serve as chief executive officer, and the group is committed to the "orderly continuity of the company’s strategy and operations," it said in the statement.
The chairman will face the challenge of normalizing a group that’s trembling under more than $90 billion in debt. HNA has sold more than $16 billion in assets this year in the face of soaring borrowing costs after spending tens of billions of dollars snapping up trophy properties and stakes worldwide.
In regards to the disposal of Wang’s 15 percent stake in the group, HNA said the matter will be addressed in a manner that’s consistent with his pledge to donate them to charity in due course. HNA said last year its top executives pledged that in the event they resign or die, that they would donate all their shares to the Cihang charities that HNA set up. The two Cihang charities, one in China and another in New York, owned 52 percent of HNA as of July last year.
The statement didn’t specify which charity the shares would go to. Wang was also vice president of the China Foundation for Justice and Courage, which is managed by the country’s Ministry of Public Security.
There is no shortage of challenges Chen, 65, and Tan, 51, face. After spending more than $40 billion since the beginning of 2016 on an acquisition spree -- including the purchase of large stakes in Deutsche Bank AG and Hilton Worldwide Holdings Inc. -- HNA is now in downsizing mode.
Despite its success in selling out of Hilton and disposing of various real estate properties globally, the job isn’t done, according to Warut Promboon, managing partner at Bondcritic Ltd.
"HNA should come out to affirm to investors that the restructuring and asset sale efforts are on course," said Promboon. HNA needs to reduce its debt further by billions of dollars, Promboon said.
Still, concerns over HNA have been easing in recent weeks after the asset sales and as the Chinese government is said to have agreed to help the company, which couldn’t generate enough profit in 2017 to pay interest expenses.
But asset sales only address part of its funding needs. HNA last month sold its first bond in China after a rare five-month drought, signaling a crucial source of funding for the debt-laden conglomerate may be opening up. Still, the issuing company, Bohai Capital Holding Co., paid a record coupon of 7 percent, according to data compiled by Bloomberg. Borrowing costs for HNA have been high -- they surged to a record 32.1 billion yuan in 2017, exceeding its earnings and topping all non-financial companies in Asia.
"HNA’s got to put up with higher financing costs just to get funding access, up until they reach a stage where they have sufficiently de-levered,"said Jin Rui Oh, a senior analyst at United First Partners. "Just do what the government wants -- De-leverage and divest."
Yet there are signs that HNA is turning a corner. In June, China’s top leaders agreed to help HNA raise funds, people familiar with the matter have said. A senior official at the People’s Bank of China even held a meeting that included the Hainan provincial government, HNA’s Chen and the group’s biggest creditor, to instruct attendees to support HNA’s bond issues, according to the people. Soon after, HNA’s Bohai Capital sold its bond.
HNA’s top creditors are also state-held.
"The message from the government is very clear: HNA is to reduce debt and to concentrate on its core business of running an airline," said Victor Shih, professor of political economy at the University of California at San Diego. "I expect Chen Feng to focus on that."
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