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HNA Share Pledges Are Behind Frozen Bank Accounts

Updated on
  • Ningbo found HNA to have used collateral for another loan
  • Group unit had also faced margin call after shares fell

A creditor of an HNA Group Co. unit found that the company put up some shares as collateral for multiple loans, resulting in a temporary freeze of related bank accounts, according to people with knowledge of the matter.

Ningbo Commerce Bank lent 450 million yuan ($71 million) to HNA Technology Group Co., backed by 70 million shares of Shanghai-listed unit Tianjin Tianhai Investment Co., said two of the people, who asked not to be named discussing a private matter. After determining that those shares were pledged to another creditor, Ningbo Commerce sought to freeze related bank accounts, the people said. A representative for Ningbo Commerce declined to comment.

Though Tianjin Tianhai, which guaranteed the loan, on Thursday announced that three accounts were temporarily frozen because of Ningbo Commerce, it didn’t specify the reason beyond saying that it was a disagreement over the repayment of debt. The episode illustrates how financial pressures are intensifying at HNA, one of the world’s most indebted companies, after the conglomerate spent tens of billions of dollars in an acquisition spree in recent years.

The situation bubbled up after a drop in Tianjin Tianhai’s stock price -- it fell 34 percent from mid-April to early June and 25 percent from mid-November to late December -- which triggered a margin call, the people said. Although part of the loan was paid back, Ningbo Commerce began an investigation into the HNA unit and found that those shares were being pledged to another creditor. That, combined with stricter limits on borrowings backed by pledged shares, prompted the lender to call back the entire loan, which the HNA unit failed to do, one of the people said. About 280 million yuan remained outstanding and a court dispute ensued, resulting in the frozen accounts, the people said.

In its Thursday statement, Tianjin Tianhai said that after negotiations with Ningbo Commerce, a Shanghai court ordered the accounts to be unfrozen on Jan. 15. Tianjin Tianhai also said that the parent company became aware of the situation on Jan. 12 -- coinciding with the day that the stock was halted from trading, pending a "major" announcement. Tianjin Tianhai said its operations haven’t been affected and HNA Technology will improve its communication with banks to avoid a recurrence of any similar situation.

A representative for HNA couldn’t immediately comment beyond Thursday’s statement.

Among HNA’s dollar bonds, one maturing in 2018 dropped 0.3 percent to 90.44 cents as of 5 p.m. in Hong Kong, according to Bloomberg data.

Tianjin Tianhai is one of six HNA units -- the others being HNA-Caissa Travel Group Co., Hainan HNA Infrastructure Investment Group Co., Bohai Capital Holding Co., HNA Investment Group Co., and flagship Hainan Airlines Holding Co. -- that have suspended their shares from trading this month, pending major disclosures. Another unit, CCOOP Group Co., has been halted from trading since November, pending the disclosure of some asset purchases.

HNA’s debts surged last year as financing costs more than doubled, according to the group’s latest half-year financial report. Since then, investor concerns about the conglomerate’s finances have increased, driving its borrowing costs higher. Some banks froze several unused credit lines to HNA units after they missed payments, people familiar with the matter said in January.

The Ningbo Commerce dispute also puts a spotlight on HNA’s extensive use of share pledges to borrow funds. According to filings and data compiled by Bloomberg, HNA and its units pledged at least $24 billion of shares across 15 publicly traded firms as of July, including shares of Hilton Worldwide Holdings Inc. and Deutsche Bank AG.

Read more: Bloomberg investigation on HNA’s share pledges

In China, a court-ordered freeze on bank accounts and double pledging of collateral could trigger a rush among other creditors to review their exposure to the borrower and result in more banks to call in their loans. In 2014, Decheng Mining was found to have pledged the same metals stockpiles three times over to obtain more than 2.7 billion yuan of loans in China’s Qingdao port, which triggered an industry-wide curb in commodities financing.

— With assistance by Prudence Ho, Jun Luo, Heng Xie, Ying Tian, and Judy Chen

(Updates with comment in fifth paragraph.)
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