China's HNA sells Hong Kong land for US$2b as it races to beat cash crunch

[HONG KONG] China's HNA Group is selling two land parcels in Hong Kong to Henderson Land Development Co for US$2 billion), as the Chinese conglomerate ramps up asset disposals to address a liquidity crunch.

HNA subsidiary Hong Kong International Construction Investment Management Group Co Ltd (HKICIM) is selling the land at Kai Tak, near Hong Kong's former airport, the subsidiary said in a statement on Tuesday. The deal is expected to be completed on Wednesday, it said.

The aviation-to-financial services conglomerate is racing to alleviate severe financial strain on it following a US$50 billion acquisition spree over the past two years, which has sparked scrutiny of its opaque ownership and use of leverage.

Its borrowings, including bank loans and bonds, surged by more than one-third over the first 11 months of last year to 637.5 billion yuan (S$133.34 billion), according to an HNA China bond market filing.

Group assets reached 1.2 trillion yuan at the end of June, according to a separate bond market filing.

Last month, HNA told creditors it faces a potential cash shortfall of at least 15 billion yuan in the first quarter, according to a source. HNA had declined to comment.

It has over the past few months focused on scaling back its offshore real estate investments, and has reportedly put up for sale commercial properties worth US$4 billion in New York, Chicago, San Francisco and Minneapolis.

The sale of the Hong Kong land parcels to Henderson Land, controlled by the territory's second-richest man, Lee Shau-kee, would be conducted by two Cayman Island funds holding the rights to the sites, HKICIM said, without elaborating.

HNA declined to comment further on the land sale when contacted by Reuters.

HNA had won tenders for the land in Kai Tak for about HK$14.2 billion in late 2016, outbidding Hong Kong developers with a figure above market price. The sites were zoned for residential development.

"HNA claims a 13 per cent gain on the shockingly expensive purchases in just over a year, and while this is undeniably good news for the company, the proceeds won't come close to resolving HNA's liquidity shortfall," said Brock Silvers, managing director at Kaiyuan Capital, a Shanghai-based multi-asset advisory firm.

"The company is expected to engage in further divestitures, especially its offshore real estate, (as) it continues to shore up domestic bank support." Shares of HKICIM surged as much as 21 per cent early on Tuesday, outpacing a 1.8 per cent rise for the benchmark Hong Kong stock index. Henderson Land was up just over 1 per cent.

The Asian financial hub has one of the most expensive housing markets in the world, with private home prices shattering historic records for 13 months in a row and rising almost 200 per cent since 2008.

LIQUIDITY PROBLEMS Mainland Chinese companies have piled into Hong Kong's real estate market over the past few years, outbidding some of the territory's most powerful developers, many of who have been unwilling to compete with spiralling prices.

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 Chief Executive Officer Adam Tan said in November that the conglomerate was selling some real estate and other assets to improve liquidity, and that the company would not invest in areas that were not backed by the central government.

Late last month, HNA said it had reached a deal to sell a building in Sydney for US$166 million.

News of the Kai Tak deal came after HNA's Hainan Airlines said late on Monday the government-backed Tianjin Free Trade Zone had agreed to inject 400 million yuan into Tianjin Airlines, a unit of Hainan Airlines.

Nearly half of Hainan-based HNA's listed units, including Hainan Airlines, have suspended trading in their shares since November pending announcements.

REUTERS