HNA Liquidity in Question as Citic Bank Cites Repayment ‘Issues'

Updated on
  • HNA Aviation Group having repayment difficulties, Citic says
  • HNA director said Dec. 8 that debt structure was healthy
Bloomberg’s Prudence Ho reports on the warning from Citic regarding a unit of debt-laden HNA.

Citic Bank Corp. said a unit of HNA Group Co. is having difficulty repaying certain short-term debts, just over a week after the Chinese conglomerate said it won’t default in the coming year.

HNA Aviation Group Co. has had trouble paying bankers’ acceptances -- debt instruments that mature in the short term -- and Citic Bank is working with HNA Group to try to resolve the situation, the Chinese lender said in a statement sent exclusively to Bloomberg News this weekend. The group has several bonds and loans from multiple banks maturing at similar times, causing a “temporary liquidity” issue, Citic Bank said.

A more than $40 billion acquisition spree since 2016 that was fueled by debt and included stakes in Hilton Worldwide Holdings Inc. and Deutsche Bank AG has landed HNA in the spotlight of regulators and investors around the world. The fear -- which HNA says is unfounded -- is that the conglomerate could buckle under the burden of its debt load and upset markets.

The statement from Citic Bank comes after HNA Group director Zhao Quan sought to ease investor concerns over the conglomerate’s ability to pay its debt obligations. The company has “a healthy and stable debt structure” and there would be no default in the coming year, he said in a Dec. 8 interview.

HNA Group’s cooperation with Citic Bank remains normal and there’s no delayed payment, the company said in a WeChat response to Bloomberg News questions on Saturday, declining to comment further.

An HNA unit’s dollar bonds due in 2018 dropped 0.8 cent, the first decline in three trading days, to 96.8 cents on the dollar as of 5:36 p.m. Monday in Hong Kong, according to prices compiled by Bloomberg.

While a bond market rout drove up funding costs for all Chinese firms recently, the acquisitive conglomerate has faced its own issues as government scrutiny of its finances this year has made some investors wary. Chief Executive Officer Adam Tan said late November that the company is considering selling assets, suggesting it is reversing a shopping spree that cost tens of billions of dollars.

Read more: A QuickTake Q&A on the mysterious HNA

Not everyone sees an easy path ahead.

“There is opacity around HNA’s corporate and ownership structure as well as its funding strategies,” Anne Zhang, executive director for fixed income, currencies and commodities at JPMorgan Private Bank in Asia, said earlier this month. “It’s not clear which of its entities will tap the market and if there are any inter-entity fund flows. The market is certainly demanding a lot of risk premium for its opacity.”

Rating Lowered

S&P Global Ratings has lowered HNA Group’s credit profile by one level to five steps below investment grade, citing its significant debt maturities over the next several years and rising finance costs.

There are concerns over HNA’s ability to pay its debt obligations but the firm’s default probability in the near term is “quite low,” Warut Promboon, managing partner at credit research firm Bondcritic Ltd., said earlier this month, adding that he expects Chinese lenders to support the company.

HNA’s interest expenses more than doubled to a record 15.6 billion yuan ($2.4 billion) in the first half from a year earlier, according to data compiled by Bloomberg. Its short-term debt expanded to 185.2 billion yuan, exceeding its cash-pile.

“Financial flexibility is becoming increasingly challenged,” Todd Schubert, head of fixed-income research at Bank of Singapore Ltd., said earlier this month.

HNA has used more than 500 billion yuan of credit lines totaling about 800 billion yuan, and has smooth cooperation with financial institutions, HNA’s Zhao said in the Dec. 8 interview. Borrowing costs “will definitely decline next year,” he said. “Banks are running out of credit quota toward the end of the year. They will be granted new credit quota at the start of the new year.”

— With assistance by Emma Dong, Jun Luo, Dong Lyu, and Prudence Ho

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