China’s HNA reports debts have soared to $94bn - Financial Times

April 28, 2018

China’s HNA reports debts have soared to $94bn
Figures reveal full extent of pressures that led to sell-offs to cover buying spree

© Reuters

Lucy Hornby in Beijing
Total debts of Chinese finance to aviation conglomerate HNA soared in 2017 to Rmb598bn ($94bn), its annual report showed, revealing the full extent of the financial pressures behind its asset sales in recent months.

The annual report of the company’s Shanghai-listed flagship unit gives the greatest visibility into the state of HNA’s finances since signs of liquidity problems emerged in the second half of 2017. However, the company did not provide updated figures to reflect the roughly $13bn in assets it has sold so far this year. The company, once China’s most active in terms of overseas investments is still selling off its purchases as it attempts to pay down debt.

Borrowing costs surged to about $5bn for the full year, up from $2bn in the first half of 2017, triggering the liquidity crisis that rippled through the conglomerate between November to late January. Borrowing costs exceeded its earnings before interest and taxes, and topped the ranks of non-financial companies in Asia during that period, according to Bloomberg data.

Net revenue rose to Rmb592 in 2017 compared with Rmb194 in 2016, HNA said. Net income rose to Rmb2.6bn, from Rmb1.5bn the year before.

HNA weathered a severe liquidity strain when yields on some of its bonds soared above 20 per cent in January. But Chinese banks have turned the taps back on since early February, and its asset sales have accelerated since then.

In March, a key subsidiary, Hainan Airlines, said it would take over HNA Group’s stakes in two local airlines and five other businesses as part of the asset reorganisation.

Scrutiny of HNA’s finances and ultimate ownership has scuttled two planned initial public offerings of aircraft service firms in Switzerland, depriving the company of billions of dollars in hoped-for returns.

Concerns over HNA’s access to financing date from China’s crackdown, last summer, on risky financing practices by its largest and most acquisitive private conglomerates.

Controversy over its ownership was triggered by exiled businessman Guo Wengui, who alleged on social media last year that the in-laws of China’s then anti-corruption tsar Wang Qishan had improperly benefited from undeclared ties to the company.

The Financial Times has not been able to verify those claims, but inconsistencies and rapid shifts in HNA’s declared ownership have triggered regulatory reviews in several countries. Some planned acquisitions, including that of Anthony Scaramucci’s SkyBridge Capital, have fallen through or been delayed indefinitely.

Mr Wang retired from the Politburo Standing Committee, China’s elite ruling body, in October, but reappeared on the political scene in late January. He is currently the vice-president of China.

Mr Guo, meanwhile, has been accused of violating US campaign finance laws, in the latest of a string of attempts by Beijing to repatriate him from his Manhattan apartment. In a lawsuit against a Florida man, Mr Guo has said he had never donated to any US campaign.

Twitter: @HornbyLucy