Addendum
Increased loan costs heighten HNA Group scrutiny
December 1st 2017
At press time, Mainland aviation, tourism and grass roots lender, HNA Group, attracted additional speculation about its financial health when the Bloomberg news service reported the HSBC banking group had advised its bankers against writing deals with the Chinese conglomerate in recent months. Read More »
Bloomberg said HSBC’s reservations about doing new business with HNA centred around the group’s heavy debt burden, which is reported to exceed its assets.
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At the same time, sources in the industry said the group was behind in repayments to the Agricultural Bank of China and that several provincial Chinese governments were worried HNA could not service loans they had advanced to the group. A reported delayed lease payment to Lucky Air was settled last week.
The Chinese conglomerate, which commenced life as a single carrier on the southern Chinese island of Hainan more than 30 years ago, controls nine Chinese and two Hong Kong airlines. They are: Hong Kong Airlines and HK Express, Hainan Airlines, Air Chang’an, Beijing Capital Airlines, Fuzhou Airlines, Guangxi Beibu Gulf Airlines, Lucky Air, Urumqi Air and West Air.
There is increasing pressure on HNA Group to reassure investors of its financial soundness after it went on an estimated US$50 billion global investment spree in the last two years. Its acquisitions have included Germany’s Hahn airport, substantial holdings in technology companies, purchase of groundhandler, Swissport, for US$2.8 billion, US$1.9 billion for caterer Gategroup, 25% of the global Hilton hotel group for US$6.5 billion and 9.6% of Deutsche Bank for a speculated US$4.5 billion. It also controls aircraft lessor, Avolon.
HNA Group spokesman and recently announced new board director, Zhao Quan, told the Financial Times in early December: “The U.S. is raising interest rates and the Chinese government is tightening and deleveraging. The general environment is affecting liquidity,” he said. “In December, interest rates are high, not only for HNA.”
He added the group was in no hurry to sell any assets, a change in direction from HNA Group chief executive, Adam Tan, who said the group might sell assets as it moved to accommodate the One Belt, One Road vision of Chinese president, Xi Jinping.
The Financial Times also reported that HNA and its subsidiaries operate financing platforms in China to raise money. It said it has a product that is offering 8.8% corporate bond.
“If I wait for January, the cost may be 100 or 200 basis points lower, why should I issue now,” Zhao said.
