HNA Bonds Get Cold Shoulder From Investors
* Offering was scaled back from initial target of issuing as much as 2 billion yuan in bonds
* HNA units have postponed and canceled bond sales amid rising financing costs
China’s debt-ridden conglomerate HNA Group made its first successful bond sale in nearly half a year to help ease its capital strain. But the market reception was lukewarm and the issue raised half as much as planned.
HNA’s major financial arm Bohai Capital Holding Co. Wednesday issued 1.06 billion yuan ($164 million) of bonds with a 7.00% yield. It is the first bond sale by an HNA company since January, when Bohai Capital issued 1 billion yuan in ultra-short debt.
Bohai Capital said the proceeds will be used to supplement the company’s working capital and repay debt.
The latest issuance was scaled back from the original plan to issue as much as 2 billion yuan in bonds, reflecting lukewarm sentiment among investors, Caixin learned. The borrowing won regulatory approval as early as December.
Great Wall Securities was the lead underwriter of Bohai Capital’s bond offering. The main subscribers included CITIC Bank, Shengjing Bank and Sealand Securities, Caixin learned.
HNA and its subsidiaries have felt a crunch since June last year when regulators altered risk assessments associated with private companies’ debt-fueled expansion and ordered lenders to inspect their loan exposure to several high profile dealmakers including HNA, Dalian Wanda Group and Fosun International.
While banks tightened credit controls, HNA also felt the chill in the bond market as financing costs rise and investors grow wary amid the country’s deleveraging campaign and rising defaults.
In December, Tianjin Airlines, a subsidiary of HNA, decided against issuing 1 billion yuan of short-term bonds, citing "market fluctuations." The cancellation heightened concerns about capital pressures weighing on HNA and its subsidiaries after years of aggressive acquisitions.
A source close to HNA said the company’s cost to access fresh capital has surged to nearly 12%.
Under the financial pressure, HNA has stepped up asset divestitures to reduce debt. So far this year, HNA has offloaded assets worth more than 105 billion yuan, including stakes representing some of its highest-profile deals such as its holdings in Hilton Worldwide Holdings Inc. and Deutsche Bank.
A source close to HNA said the company is preparing more asset sales as part of its business transformation plan. HNA is likely to sell a total of 300 billion yuan of assets throughout the year, the source said.
In May, HNA disclosed in a stock exchange filing that at the end of 2017 it had total assets of 1.23 trillion yuan, up 21% from the previous year. But debt grew even faster, by 22% to 737 billion yuan at the end of last year, the report showed. The debt-to-assets ratio climbed to almost 60% at year end.
Bohai Capital had 265 billion yuan in unpaid debts by the end of 2017, up 48% from a year ago. About 50 billion yuan in debt payments will be due this year. The company’s debt-to-asset ratio rose to 89% at the end of 2017 from 83% in 2016, company reports showed.
Contact reporter Han Wei (firstname.lastname@example.org)
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