Deleveraging push in China adds pressure to indebted conglomerate
Domestic conglomerate HNA Group, which in recent years expanded its assets via debt-fueled acquisitions of overseas property and companies, is now selling off real estate assets to raise cash, leading observers to speculate that the company is having financial problems amid a push by the Chinese government to reduce leverage in the economy.
"From what I know, the HNA Group is endeavoring to sell more of its property assets, not only land but also some leased assets. Now they are sounding out potential buyers about prices," a person familiar with HNA Group matters told the Global Times on Tuesday on condition of anonymity.
On Tuesday, Hong Kong International Construction Investment Management Group Co, a subsidiary of HNA Group, announced that it plans to sell two of its property assets in Hong Kong to the Henderson Land Development Co, according to a filing Hong Kong International Construction sent to the stock exchange in Hong Kong on Tuesday.
The transaction is valued at about HK$15.96 billion ($2.04 billion), according to the filing.
Liu Junchun, vice president of Hong Kong International Construction, said that this transaction will bring "ideal [capital] returns" for the company, the HNA Group said in a statement it sent to the Global Times on Tuesday.
The HNA Group has made other similar moves in recent months. The company sold a building in Sydney to Blackstone Group for about $161 million, Reuters reported on January 26.
The Reuters report quoted a senior executive at HNA Group as saying that the company was planning to sell an asset in New York and was reviewing its other property assets overseas.
HNA Group also recently announced the termination of a plan to create a real estate investment trust in Singapore, according to media reports.
The anonymous source told the Global Times that HNA has borrowing heavily in recent years to fuel its rapid overseas expansions. But with regulatory pressure in China increasing, banks have been cutting back fresh loans to HNA Group. That has put immense pressure on the company, which needs new loans to pay off the old ones.
"I've heard that the HNA Group has missed some payments to leasing companies, so they're really under pressure to repay their debt," he said.
He also warned that HNA has borrowed so much money that any cash problems could have "dire consequences" for its major creditors.
Some of those lenders, like the China Development Bank, are maintaining their credit lines to the HNA Group, he said.
Cong Yi, an economics professor at the Tianjin University of Finance and Economics, said that the HNA Group is a good example of what can go wrong when companies use leverage to expand.
"This model [of expansion via borrowing] has a rapid effect, but the risks are also huge, because this practice leads to a high debt ratio," he told the Global Times on Tuesday.
The HNA Group said recently that its indebtedness was at a relatively low level for the past decade, cailianpress.com reported in December 2017.
But the company has also admitted that it is having liquidity problems, according to a Reuters report on January 18 citing HNA Group chairman Chen Feng.
Chen said many factors had caused the problem, including HNA's previous mergers and acquisitions, as well as China's slowing economy, higher US interest rates and deleveraging in China.
"The government is tightening its management of capital outflows. I think what HNA Group has done raises suspicions of 'capital outflows'," Cong said.
Cong said that another company that took a similar expansion path was Chinese conglomerate Dalian Wanda Group, which has also moved to sell many of its overseas assets in recent months.
