December 8, 2017 / 2:51 AM / a year ago

China's HNA pushes back against liquidity concerns, won't sell assets 'blindly'

HONG KONG (Reuters) - China’s HNA Group [HNAIRC.UL] sought to allay growing concerns that the massive conglomerate is facing a liquidity crunch and may need to dispose some recent acquisitions, including stakes in Deutsche Bank (DBKGn.DE) and Hilton (HLT.N).

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

Zhao Quan, head of HNA’s tourism division and the group’s newest board member, told Reuters on Friday in a telephone interview from Haikou city in southern China that adjustments in the group’s portfolio had started earlier, and the company was not selling its holdings “blindly”.

HNA has not “suddenly started to liquidate assets”, said Zhao, who added the company has been disposing of non-core businesses in line with group strategy. Zhao dismissed “outside speculation” that the group is facing a “liquidity crisis”.

Zhao’s comments come against a backdrop of a slew of repayment obligations and concerns about rising financing costs at the indebted airline-to-property conglomerate. HNA’s $50 billion worth of deal-making over the past two years has sparked intense scrutiny of its opaque ownership and use of leverage.

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 non-state companies.

HNA subsidiaries have issued 5 billion yuan ($755.60 million) in domestic commercial paper over the last month, with all yielding around 7 percent, which one analyst said was high.

“The onshore interest rates have risen in the medium term and that may be pushing HNA to short term paper first to accommodate their liquidity condition,” said Banny Lam, Head of Research at CEB International.

HNA’s Zhao attributed the more expensive notes to tightening domestic markets, especially as the government moves to deleverage the economy, along with a changing global macroeconomic environment.


HNA is undertaking a review of its overseas assets, Zhao confirmed, but added it would take time to evaluate and find any suitable buyers. Among the assets he identified as being up for sale is 1180 6th Avenue in New York.

The company says it already has “cleaned up” more than 100 non-core units this year.

Among HNA’s most high-profile offshore acquisitions has been a 25 percent stake in Hilton for $6.5 billion and a 9.9 percent stake in Deutsche Bank.

Zhao characterized both share purchases as “successful” financial investments, as well as “profitable”. Hilton dividends have amounted to $30 million over the last nine months, Zhao said, while the Deutsche Bank shares have gained 300 million euros.

“We hope to have more cooperation with both companies,” Zhao said.

HNA’s plans to turn four parcels of land it acquired for about $3.5 billion in Hong Kong into a massive residential development also were moving forward, he said, calling the project “strategic”.

Zhao also dismissed a recent weak credit assessment of HNA by S&P, suggesting the credit ratings agency may have been influenced by a “small amount of public information”.

James Wang, HNA group’s chief investment officer, expressed confidence in the same interview that pending deals to buy New Zealand’s UDC Finance and a controlling stake in U.S. hedge fund platform Skybridge Capital would receive regulatory approval.

HNA, which is also facing scrutiny and due diligence checks from financial regulators and some global banks following its July announcement that indicated that two named shareholders were actually acting as proxies for company founding executives, is moving forward to clear compliance hurdles, Zhao said.

“It’s only a matter of time” before the company clears know-your-customer checks with some Wall Street banks, he said.

Reporting By Matthew Miller and Julie Zhu; Additional reporting by Umesh Desai; Editing by Anne Marie Roantree and Muralikumar Anantharaman

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