November 7, 2017 / 7:42 PM / a year ago

China's indebted HNA in new deal for short-term funds amid cost worries

NEW YORK/HONG KONG (Reuters) - China’s HNA Group [HNAIRC.UL] struck a second deal in less than a week to raise short-term funds, amid concerns about rising financing costs at the indebted airline-to-property conglomerate.

FILE PHOTO - The HNA Group logo is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

HNA agreed a sale-and-repurchase deal on some shares in Spain’s NH Hotel Group (NHH.MC) to raise cash for internal financing, according to a regulatory filing. Such deals are used for raising short-term capital by offering shares as collateral.

The Chinese conglomerate, whose $50 billion worth of deal-making over the past two years sparked intense scrutiny of its opaque ownership and use of leverage, has faced rising costs for fresh borrowings in recent weeks amid a slew of upcoming maturities.

It has $17.2 billion of outstanding bonds, of which $2.3 billion are due in 2018 and $4.6 billion are due in 2019, Thomson Reuters data showed.

In a statement to Spain’s market regulator CNMV, HNA said it will sell and buy back a 1.14 percent stake in NH Hotel to “provide liquidity to HNA globally in the context of internal financing”.

The transaction was done with an institutional investor that was not named by HNA.

With a 29.5 percent stake, HNA is the biggest shareholder in the Spanish company, which has a market capitalization of 1.82 billion euros ($2.11 billion).

A 1.14 percent stake in NH Hotel is valued at around 21 million euros. HNA did not say how much cash it would get from the sale and repurchase deal.

HNA declined to comment.

Pressure on HNA’s finances has risen after the Chinese government told major banks in June to review their credit exposure to HNA and a handful of other companies. And last month, regulators temporarily barred its life insurance unit from providing funding for HNA.

Last week, HNA sold $300 million worth of short-dated bonds at an 8.875 percent coupon at par, partly to refinance its foreign debt.

Analysts have said the bond sale showed HNA’s rising funding costs as the yield offered was higher than the yield on its December 2018 bond CN125936105= at the time of pricing, according to Thomson Reuters data.

The December 2018 bonds were, however, trading nearly at par on Wednesday, underscoring investors’ comfort with the issuer’s credit profile.

Headquartered in China’s southernmost island of Hainan, HNA is also one of the biggest shareholders in Deutsche Bank (DBKGn.DE).

The conglomerate, which is 52.3 percent controlled by two charities in China and New York, has attracted substantial regulatory scrutiny in the past year due to its ownership structure.

HNA’s investment in NH Hotel has also run into problems.

About 60 percent of shareholders in NH Hotel agreed earlier this year to oust HNA-appointed members from its board over what they said was a conflict of interest due to HNA’s takeover of a rival hotel group.

($1 = 0.8618 euros)

Reporting by Koh Gui Qing and Umesh Desai; Editing by Frances Kerry and Muralikumar Anantharaman

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