China’s HNA slims down after asset sales but debt concerns persist

FILE PHOTO: The HNA Group logo is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

Though HNA Group Co. managed to reduce one of China’s biggest debt piles by selling off dozens of assets, the embattled Chinese conglomerate will probably need to get much slimmer before regaining the trust of investors.

Total debt fell 9.5 percent to 541.6 billion yuan ($79 billion) at the end of June, down about $8.3 billion from a record set at the end of last year, according to figures derived from a half-year report dated Friday. It’s the first time the number has fallen, based on public data compiled by Bloomberg stretching back to 2005.

The lighter load may ease the pressure on HNA, which is seeking to recover from a binge that involved borrowing tens of billions of dollars to fund purchases ranging from big stakes in Deutsche Bank AG to skyscrapers in Manhattan. But debts remain high and the results weren’t enough to shake off concerns about the company.

“The improvement does not appear material enough and management perhaps needs to do more,” said Warut Promboon, managing partner at credit research firm Bondcritic Ltd. “Asset sales are a good step in the right direction.”

The company, along with the likes of Dalian Wanda Group Co. and Anbang Insurance Group Co., is now reversing course after spearheading an unprecedented shopping spree of high-profile assets worldwide, which ultimately drew the ire of the Chinese government amid concerns about unsustainable debt levels.

HNA has sold more than $17 billion in assets this year — much of it coming from the sale of its holdings in Hilton Worldwide Holdings Inc. and its spinoffs — according to a Bloomberg tally. More disposals are on the way after the company agreed to unload billions of dollars worth of shares in Avolon Holdings Ltd. and the Radisson hotel chain. HNA is also seeking to sell buildings across America, London and China, people familiar with the matter have said.

In another tailwind, China’s leaders were said to have agreed in June for the government to help HNA raise funds as long as the company sells out of non-core industries, stops diversifying through acquisitions and sticks to its main travel business.

“I am optimistic they can improve their financial situation,” said Andrew Collier, managing director at Orient Capital Research. “HNA’s total debt is likely to decline due to asset sales. They also are getting significant support from Chinese banks, which will support their working capital.”

Yet challenges abound. HNA is still burdened with one of the largest interest expenses in the world. The payments, which it reduced by 7.4 percent from a record set the previous semester, ranked as the highest among non-financial companies in Asia, according to data compiled by Bloomberg as of Saturday. HNA also ranked No. 1 in Asia last year.

Its cash, equivalents and short-term investments dropped to 128.1 billion yuan, not enough to cover HNA’s short-term debt. The total debt figure also remained as one of the biggest for a non-financial company in Asia and was more than triple that of fellow Chinese conglomerate Fosun International Ltd.

Beyond financial challenges, HNA has been roiled by the sudden death of 57-year-old Co-Chairman Wang Jian in July, a tragedy that threw a wrench at the company’s normalization plans as Wang was said to be the mastermind behind the purchase of many of the assets that are now being sold.

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.