China’s Great Fire Sale may have begun.
HNA Group Co., the indebted Chinese aviation-to-hotels conglomerate, told creditors it will seek to sell about 100 billion yuan ($16 billion) in assets in the first half of the year to repay debts and stave off a liquidity crunch, according to people familiar with the matter, who asked not to be identified because the discussions were private. Under the proposal, about 80 percent of that would be executed in the second quarter, according to the people.
The move is the latest in a steady drumbeat of news signaling the urgency of HNA’s liquidity situation. It also shows how after spending tens of billions of dollars gobbling up large stakes in everything from Deutsche Bank AG to Hilton Worldwide Holdings Inc., the company that once symbolized the country’s seemingly insatiable appetite for overseas assets is reversing course as China clamps down on what it describes as “irrational” investments.
HNA isn’t alone in feeling the heat. Billionaire Wang Jianlin, whose group controls AMC Entertainment Holdings Inc. and was once China’s richest man, is retreating from previous ambitions to build an entertainment empire that could challenge Walt Disney Co. China’s government is also seeking to broker the sale of a stake in Anbang Insurance Group Co. — the former serial acquirer that shot to fame through its purchase of New York’s Waldorf Astoria hotel.
As to HNA, it wasn’t immediately clear what it’s specifically planning to sell but as of June, HNA had amassed $190 billion of assets — more than at American Express Co. The group also held almost $30 billion of shareholdings, according to data compiled by Bloomberg, and Real Capital Analytics estimates the conglomerate owns more than $14 billion in real estate properties worldwide.
Chief Executive Officer Adam Tan first flagged HNA’s course reversal in November, when he said that the group was looking to sell assets to conform with Chinese government policies, which for the past year, have increasingly scrutinized outbound investments.
The disposals have begun. Last week, it agreed to sell a Sydney office building to Blackstone Group for A$205 million ($165 million), according to people familiar with the matter, in the conglomerate’s first known disposal of an overseas property. In Hong Kong, HNA is taking the rare step of inviting outside investors to buy into two land plots it purchased for $1.8 billion just over a year ago. The conglomerate is also said to have approached brokers earlier about the possible sale of two office buildings in London’s Canary Wharf financial district and HNA has been seeking to sell its stake in its 1180 Avenue of the Americas building in New York for months.
It’s not just property. On Friday, one of the group’s units sold its stake in a U.S. shipping company for a loss.
Behind the disposals are HNA’s debts, which have stood out in recent months. As of the end of June, it had 185.2 billion yuan of short-term debt — more than its cash and earnings can cover. HNA’s earnings can’t cover its interest expenses, which according to data compiled by Bloomberg, have surged to levels topping those of any non-financial Chinese company and continue to rise.
Read more: HNA’s latest moves to address liquidity
Though the company expects pressure to ease in the second quarter after asset sales accelerate, HNA is said to be 15 billion yuan short of the 65 billion yuan in debt coming due during the first quarter.
“When management blinks that it has liquidity problem, no one technically will want to lend to them,” said Warut Promboon, managing partner at credit research firm Bondcritic Ltd. “I do expect HNA’s banks to come together to inject liquidity if HNA needs. However, that will not come lightly as banks could put in a lot more conditions.”
HNA representatives didn’t respond to a request for comment for this story but the company has repeatedly said in recent months that it’s in good financial condition and that its debts are manageable. In December, board director Zhao Quan said that any tightness in funds would be temporary and that the group wouldn’t default on any borrowings in the coming year.