HNA Debt Fears Return on Shaky Airline, Bond Trading Suspension
HNA Debt Fears Return on Shaky Airline, Bond Trading Suspension
(Bloomberg) -- Concern is growing about HNA Group Co., once the poster child for China’s debt-fueled overseas acquisition spree, after one of the airlines it backed almost collapsed and trading in some of its bonds was halted.
What’s the company:
The group shot to prominence between 2016 and 2017 after spending more than $40 billion on acquisitions across six continents. The once little-known airline operator became the biggest shareholder of iconic companies such as Hilton Worldwide Holdings Inc. and Deutsche Bank AG as well as paying top dollar for high-end properties from Manhattan to Hong Kong.
But the buying spree attracted scrutiny on things such as its opaque ownership structure. Eventually, its spiraling debt caught up with the group and prompted an equally dramatic selling spree. On top of that, the group’s co-chairman suddenly died in 2018, exacerbating the conglomerate’s crisis.
Once among the most ambitious and acquisitive Chinese private firms, HNA has since come under pressure from Beijing to sell off assets amid concerns that the group’s borrowing spree could pose a systemic risk to the nation’s economy.
The company has been mulling the sale of its majority stake of SR Technics, attracting interest from companies including Airbus SE as well as the Hainan provincial government, according to people familiar with the matter.
What’s happening:
HNA has periodically been in the news in recent years for missing payments, selling assets and struggling with debts that climbed to as high as 598.2 billion yuan ($85 billion). In September, an airport backed by HNA units, Haikou Meilan International Airport, failed to make good on a $200 million bond due Sept. 6.
Further signs of stress have emerged in the past week, when the near-collapse of HNA-backed Hong Kong Airlines Ltd. narrowly avoided losing its license to fly and the group suspended a bond because of an unspecified “major” event. HNA declined to comment on both events beyond public statements.
Trading on HNA’s 10-year 7.6% 1.3 billion yuan bond will be halted from Dec. 6 till the maturity date of Dec. 24, the company said in a filing, though it did not elaborate on the reason for the pause. Separately, Blue Skyview Co. issued a statement on Dec. 8 that its perpetual security linked to Hong Kong Airlines will be suspended until further notice.
HNA-backed Hainan Airlines Holding Co.’s 6.2% 1.44 billion yuan bond due May 2021 fell the most since Aug. 1 on Friday after news emerged about the trading halt. It fell further on Monday, heading for its lowest indicated price since February 2018, according to data compiled by Bloomberg.
Why does it matter:
HNA remains one of China’s biggest conglomerates: It had total assets of about $139 billion and debts of $75 billion during its latest financial report — the first half of this year — meaning the group has the scale to roil Chinese markets. The group is still vulnerable, with short-term debts exceeding its cash, equivalents, short-term investment and earnings.
What do analysts say:
“HNA appears surprisingly reluctant to sell off more assets to pay down its debt, perhaps because it is concerned about “fire sales” at low valuations,” said Andrew Collier, managing director at Orient Capital Research. “Whether the company survives is unclear but it is certainly attempting to keep its financial situation from completely collapsing.”
HNA Group faces “immense” debt obligations, and its financing costs remain at a high levels, according to a credit report by Shanghai Brilliance Credit Rating & Investors Service Co. in June.
What traders are watching for next:
Investors will be watching how HNA tackles two of its bonds coming due this year, including its suspended 1.3 billion yuan note and a 500 million yuan security due Dec. 15. Haikou Meilan Airport, which said it missed payment on $626 million of bonds last week, also has a 1 billion yuan issue due on Dec. 14.
The group will also have to service about 8.6 billion yuan in local and offshore bonds in 2020, though it also has the right to borrow as much as 7.4 billion yuan in loans over this period, according to data compiled by Bloomberg.
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--With assistance from Adrian Yim and Tongjian Dong.
To contact the reporter on this story: Rebecca Choong Wilkins in Hong Kong at rchoongwilki@bloomberg.net
To contact the editors responsible for this story: Neha D'silva at ndsilva1@bloomberg.net, Shen Hong, Young-Sam Cho
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