Dec 8, 2017
Every few days at the moment, it seems, we return to the subject of systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda.
Our main source of concern recently has been HNA, after it issued a bond with less than one year to maturity with the extortionately high coupon of 9%. … The reason for our continuing focus on HNA is its $28bn of short-term debt which matures before the end of next June, much of it accumulated during a binge of acquisition-driven growth … .
Last week, as we discussed, S&P downgraded HNA’s credit rating by one notch from b+ to b, five levels below investment grade. in another sign that HNA is under pressure … CEO Adam Tan announced that it was ditching its acquisitive strategy, while considering the IPO of Gategroup, a company it only acquired last year for $1.5 billion. …
We also noted how HNA businesses, even ones with supposedly good credit ratings, were stepping up fundraising moves in the domestic bond market at high coupon rates. For example, Hainan Airlines, the company’s core business, issued bonds at junk rates despite having “top ratings from local credit assessors”. …
Although cancellations of bond offerings in China had reached their highest level since April, due to the rout in the domestic market, we remarked how HNA didn’t appear to have that “luxury”. While it may not have the luxury, it’s been forced into cancellations. On Wednesday, Hainan Airlines scrapped a 1 billion yuan ($151.2 million) of perpetual bonds to repay a maturing debt. …
On Tuesday, S&P cut its long-term credit rating on another HNA unit, Swissport Group Sarl to B-, a massive six levels below investment grade. The reason for the downgrade…concerns about its Chinese parent. Also on Tuesday, HNA Investment Group, a unit specialising in real estate and hotel management, scrapped a planned 5.22 billion yuan ($790 million) after failing to get regulatory approval.
A sign that a company’s financial position is becoming critical is when company executives make public pronouncements that all is fine … . HNA has moved into this stage with both the Financial Times and Bloomberg reporting on interviews they’ve had with an HNA director. The FT first.
HNA Holdings Group has dismissed concerns about the group’s liquidity but admitted to end-of- the-year tightness, as Chinese banks eke out the remainder of their lending quotas … . In recent weeks HNA has extended the payment period for a loan from its Swiss entity, Gategroup, to another affiliate and has delayed payments to aircraft lessors, raising concerns about the group’s liquidity.
… Speaking to Bloomberg
, Zhao sounded more adamant that a default is not in prospect.
Board director Zhao Quan said in an interview Friday that … “Currently we have a healthy and stable debt structure … . The high interest rates in December are for all companies, not just for HNA. HNA’s cash flow is stable currently.”
… As we were preparing to publish, a the following Bloomberg headlines crossed our screens.
HSBC IS SAID TO TELL BANKERS NOT TO PITCH NEW BUSINESS W/ HNA
HSBC CONCERNS ARE SAID TO CENTER ON HNA DEBT, REPUTATIONAL RISK
This follows a similar internal warning at Bank of America in July … .