China eases HNA's glide path

[HONG KONG] China is easing HNA's glide path. Official pressure on banks could buttress the troubled conglomerate's efforts to refinance, and minimise the risk of an unplanned financial accident.

At a recent meeting led by the central bank, lenders were told to "support" HNA bonds, Bloomberg and the Financial Times reported. That could mean buying new issues sold by HNA units, such as an upcoming two billion yuan (S$419.5 million) deal from Bohai Capital. That would be unorthodox elsewhere, but Chinese banks already own huge chunks of the bond market and are used to taking orders.

Moreover, while HNA has secured some big disposals, including shares in Hilton Worldwide for about US$5.6 billion, credit markets are jumpy. HNA dollar bonds due in 2020, which were sold last year with a 6 per cent coupon, now yield 15 per cent, according to Eikon data. And HNA has a hefty refinancing schedule. In February, UBS analysts said 60 per cent to 65 per cent of its bonds would mature this year or next. They total US$14.3 billion, with nearly three-quarters of the amount in onshore securities.

Support from banks could therefore help ensure demand for new borrowing, and prevent HNA from paying painfully high rates. That would buy time for more asset sales, to raise cash and further sharpen HNA's focus on travel.

In addition, policy lender China Development Bank will handle future creditors' meetings and lenders will now deal with HNA through head offices, according to Bloomberg. That might be meant to stop local officers inadvertently provoking a crisis. As the UBS analysts note, Chinese conglomerate debt often carries intra-group guarantees and cross-default clauses. That means trouble can spread fast.

Beijing has taken apparently diverging approaches to acquisitive conglomerates, seemingly letting HNA and Dalian Wanda retrench in their own way even as it jailed the boss of Anbang and put his insurer under state control. This is not necessarily contradictory, however, given different financial, legal and political considerations.

Anbang probably posed a greater direct threat to savers and could be seized under existing regulation. Overall, the direction is clear: bear down on financial risk and reckless foreign deals, while keeping a lid on social or financial disruption.

China's top leaders have agreed to help conglomerate HNA Group raise funds, Bloomberg reported on June 15, citing unnamed sources.

Attendees at a June 12 meeting led by a senior official at the People's Bank of China were instructed "to support HNA's future bond issues", according to Bloomberg. The gathering included representatives from three regulators; the government of HNA's home province, Hainan; China Development Bank; and HNA co-chairman Chen Feng, the newswire reported.

On June 16, the Financial Times reported that Chinese banks were urged to support HNA's bonds. The newspaper, which cited a person briefed on the meeting, added that a state takeover of the company was ruled out.

Both reports said HNA had been instructed to focus on its main business of travel.

REUTERS