Sun, Sep 16, 2018 - Page 16 News List

Selloff by Chinese firms far from finished

‘CATCH-22’:Crucial Perspective’s Corrine Png said that HNA Group needs to divest assets to raise cash and shore up its balance sheet, but market sentiment is weak

Bloomberg

The global retreat by some of China’s biggest and most-indebted conglomerates shows no signs of stopping — even after more than US$17 billion of asset sales.

A unit of HNA Group Co (海航集團) this week missed payments on a 300 million yuan (US$44 million) loan, illustrating how the once-acquisitive Chinese company will need to unload more properties and shares to overcome liquidity challenges.

In the US on Friday, Dalian Wanda Group Co (萬達集團) scaled back its bet on movie-theater chain AMC Entertainment Holdings Inc.

HNA is planning to exit its investment in Deutsche Bank AG, is seeking a buyer for its container-leasing Seaco business, plans to surrender eight floors of office space in Hong Kong and is selling stakes in various Chinese units, people familiar with the matters have said.

Furthermore, HNA is said to be dangling billions of dollars in real-estate in the US, London and China in front of prospective buyers.

All in all, the company that was once at the forefront of China’s massive global buying binge has more than US$17 billion in further asset sales planned, according to a tally by Bloomberg, as HNA tries to shrink back to its aviation roots.

However, as the missed payments show, there is plenty of turbulence lying ahead for the conglomerate, which is saddled with one of the biggest debt piles in corporate China.

“HNA is in a catch-22 situation right now, because although it needs to divest its assets urgently to raise cash and shore up its balance sheet, the current market sentiment is weak,” said Corrine Png (方華婷), founder of Singapore-based research firm Crucial Perspective. “Financing for large acquisitions is becoming more difficult and more costly for potential buyers of HNA assets, and they may tend to low-ball HNA in terms of valuations.”

At Deutsche Bank — one of the most high-profile stake purchases HNA made — Citic Group Corp (中國中信集團) and sovereign-wealth fund China Investment Corp (中國投資) are among parties interested in buying the shares, people familiar with the matter said, confirming an earlier Wall Street Journal report.

For HNA, the biggest disposal so far has been the sale of its stake in Hilton Worldwide Holdings Inc and its spinoffs for a combined US$8.5 billion.

Behind HNA’s troubles are its debts, which by the end of June totaled 541.6 billion yuan.

The group also continues to pay some of the highest interest expenses in the world, according to data compiled by Bloomberg.

Consequently, HNA units have struggled to regain the confidence of bond investors, despite of signs that the group clinched the support of the Chinese government.

Case in point: HNA’s Bohai Capital Holding Co (渤海金控), which in June raised only about half of what it wanted from a bond sale, made another attempt this week, and again raised just about half of what it sought.

In another red flag, HNA Ecotech Panorama Cayman Co this month said that it pushed back the redemption of US$105.6 million in notes by eight weeks.

“Events such as the missed debt repayment are indications of the financial stress the company is under, exacerbated by the high level of short-term debt, but not necessarily a sign that the group is at imminent risk of collapse,” said Nigel Stevenson, an analyst in Hong Kong at GMT Research Ltd. “The disposal of assets and deleveraging is likely to be a prolonged process.”

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