(Yicai Global) Dec. 6 -- Moves in overseas markets over the past two years have led to debt problems at HNA Group Co. The Chinese conglomerate did not slow down its financing activities when many institutions cancelled their debt issuance plans as yields rose on the domestic bond market.
HNA affiliate Hainan Airlines Holding Co. [SHA:600221] said on Dec. 4 that it intends to issue up to CNY8 billion (USD1.21 billion) of ultra-short bonds in the national interbank bond market to optimize its long-term debt structure, expand financing channels and pool reserve funds for outbound investments and rigid expenditure.
Hainan Airlines said that its subsidiary, Tianjin Airlines Co., plans to issue up to CNY2 billion of medium-term notes. Hainan Airlines said that it is planning to sell CNY1 billion of perpetual bonds today, Bloomberg reported. Perpetual bonds have no definite maturity date.
Yunnan Lucky Air Co., which Hainan Airlines has a stake of more than 86.6 percent in, sold a 270-day yuan-denominated bond last week to yield 8.2 percent, an all-time high rate for Lucky Air. Tianjin Airlines issued CNY1 billion 270-day bonds last month.
HNA completed more than USD40 billion worth of deals in less than 30 months, taking stakes in Hilton Hotel Group, information technology distributor Ingram Micro Inc., Deutsche Bank AG [NYSE:DB], freight service provider Swissport International Ltd., aircraft leasing firm Avolon and CIT Leasing Corp. These transactions put HNA Group among the world's top 500 companies and left it with debt.
S&P Global Ratings lowered HNA Group's credit profile "due to the 'aggressive financial policy' at China's most prolific dealmaker, and the risk of 'tightening liquidity,'" the Financial Times reported.
HNA will face several large debt repayment due dates in the next few years. The company's intensive bond issuance despite rising rates may be a sign the company is replacing maturing debt with costlier shorter-term debt.
Hainan Airlines' accelerated financing behaviors may hurt its credit profile, said credit research firm Bondcritic Ltd.
HNA Group has about USD640 million of debt due in the next two months and USD2.2 billion and USD4.5 billion due next year and in 2019, respectively, per Thomson Reuters Eikon data.
HNA's long-term debt was CNY382.8 billion as of June 30, 6.5 times its EBITDA (earnings before interest, taxes, depreciation, and amortization), S&P Global Market Intelligence data show.
HNA executives have made it clear that the firm will slow its investment pace, especially abroad.
"HNA has invested so much today, but all of the investments have been approved by the National Development and Reform Commission (NDRC), the country's macroeconomic planner, and all of the investments are reasonable, in compliance and legitimate," said HNA Chief Executive Adam Tan said at the Caijing Annual Conference last month.
HNA pumped the brakes after several ministries and the State Administration of Foreign Exchange issued a regulatory document on Nov. 28, he said. "This is a standard thing. We are studying it seriously. If an investment is not allowed, we will not invest."