HNA Group secured strategic investors for its airline and airport businesses, a key step in the once high-flying Chinese conglomerate’s state-run reorganization and bid to move beyond its debt woes.
The administrators of HNA’s restructuring program have decided to bring in Liaoning Fangda Group Industrial Co. as strategic investor for the airline business and Hainan Development Holdings Co. for the airport unit, exchange filings showed Sunday. The government of Hainan, the southern island province where HNA is based, took control of the conglomerate’s rescue last year.
“The fact that HNA has finally found strategic investors months into its debt restructuring process is significant progress to creditors,” Bloomberg Intelligence analyst Dan Wang said.
The restructuring aims to help Hainan Airlines Holding Co. and HNA Infrastructure Investment Group Co. reduce debt and improve profitability, the two companies said in their filings. There is still a risk of bankruptcy or delisting if their financial results don’t meet regulatory requirements, they said, without elaborating. They are two of HNA’s main businesses and have been hit by the coronavirus pandemic and its impact on travel.
Progress at last
“Long after the Hainan provincial government took over the group, there is finally progress,” said Ting Meng, senior Asia credit strategist at ANZ Banking Group Ltd. “HNA’s airline and airport businesses are relatively high-quality so it’s not difficult to introduce strategic investment. But the group’s retail unit has yet to find a buyer and I think it will be more difficult,” she said.
The restructuring will likely involve options like debt-to-equity swaps and cash repayment, Meng said, adding that creditors will suffer losses but at least they will be out of the situation. HNA’s bonds are unlikely to bounce back, given that they’ve long priced in the conglomerate’s distress, she said.
HNA has approved at least 406 billion yuan ($63 billion) in debt claims while facing 1.2 trillion yuan of claims in total, people familiar with the matter said in June after the company’s first meeting with creditors.
Sunday’s statements didn’t disclose how much the assets would be sold for.
Hainan Airlines’ shares slid 4.8% in Shanghai, their biggest drop in five weeks, while HNA Infrastructure tumbled 5%, the biggest loss since May 31.
Chinese airline stocks more broadly were also lower Monday as Typhoon Chanthu approached Shanghai, leading to the cancelation of flights in and out of the financial hub. Juneyao Airlines Co. fell as much as 9.1%, while Spring Airlines Co. slid 7.7%. The Big Three of Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. also fell in both Shanghai and Hong Kong.
HNA hopes the restructuring plan will be approved by Chinese court before the end of October, Bloomberg News reported Friday, citing people briefed by administrators. Hainan Airlines and HNA Infrastructure both plan to issue new shares to the investors.
Investors are interested in the aviation assets because Hainan Airlines “has negotiation power and slots at airports throughout China and abroad,” said Warut Promboon, managing partner at credit research firm Bondcritic Ltd.
Hainan Airlines will hold its second creditors’ meeting to review the restructuring plan on Sept. 27, and HNA Infrastructure’s creditors’ meeting will be convened the next day, according to statements to the exchange.
“The company has held multiple meeting with investors so they should already have expectations for the plan,” ANZ’s Meng said. “There is still a long way to go for the group’s creditors,” she said. “It will be hard to avoid losses.”
Headquartered in Beijing, Liaoning Fangda’s businesses include carbon and steel manufacturing, pharmaceuticals and finance. It holds four companies listed in mainland China and has a workforce of more than 60,000. Hainan Development is owned by the government of Hainan. Its Chairman Gu Gang heads the workforce on HNA, which took over the group’s management in February last year.
“The announcement doesn’t signal the rebirth of HNA as much as it does the final sale of formerly core assets,” said Brock Silvers, chief investment officer at Kaiyuan Capital in Hong Kong. “Given restructured balance sheets, these operations may now become productive assets under new leadership.”