February 13, 2018 / 4:26 AM / 6 months ago

Breakingviews - HNA sale sets stage for a great escape

HONG KONG (Reuters Breakingviews) - HNA Group could be preparing for a great escape. Selling half of a marquee Hong Kong project for $2 billion will raise useful cash amid a liquidity crisis. Plenty of other foreign property and shareholdings could be sold too without disrupting the Chinese outfit’s core businesses.

A boat sails past Kai Tak Cruise Terminal, in Hong Kong, China August 18, 2017. REUTERS/Tyrone Siu

On Tuesday, Hong Kong-listed unit HKICIM said it would sell two parcels of land for about HK$16 billion ($2 billion) to Henderson Land Development. This marks a loss of face for HNA, which had splashed HK$27.2 billion on four plots in Kai Tak, once home to the old downtown airport made famous by millions of postcards showing jets hurtling over grotty apartment blocks. HNA paid far above market expectations. Company releases spoke of a “world-class integrated residential complex” at the 400,000 square-foot site.

It is not clear if HNA plans to hold onto the remaining plots or sell them too. Even for a sprawling group spanning travel, logistics, finance and other areas, the Kai Tak project seems a distraction. In any case, Hong Kong’s frenzied property market appears to have let the group turn a profit on what was a HK$14.2 billion acquisition, despite being in very public distress.  

Any cash left over would be handy. HNA has told its big lenders it faces a potential shortfall of at least 15 billion yuan this quarter, a person with knowledge of the creditor meeting told Reuters, although it has since secured a 20-billion-yuan credit facility from Citic Bank which might buy time.

There is probably plenty more to come. HNA already sold one building in Sydney for $161 million, and Bloomberg says it is putting $4 billion of U.S. commercial property on the block. Indulgent minority shareholdings might get reduced too. These could include the 25.6 percent stake HNA holds in $26 billion U.S. hotel group Hilton Worldwide, according to Eikon, or its 9.2 percent stake in Deutsche Bank – this latter already trimmed from 9.9 percent.

Yet HNA’s avid use of leverage to fund deals means the company must sell at good prices. Otherwise, the proceeds will be claimed entirely by cranky lenders. This will not be easy where it overpaid for assets, and some counterparties might try to exploit the seller’s haste. HNA’s return to earth could be as hair-raising as a landing at Kai Tak.

Breakingviews

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