HNA unit’s lenders threaten to seize assets after default

By BLOOMBERG

HONG KONG • A unit of HNA Group Co Ltd defaulted on a loan it took out less than seven months ago, the latest in a string of missed payments that threaten to complicate the embattled Chinese conglomerate’s restructuring.

Lenders to CWT International Ltd, a Hong Kong-listed unit of HNA, said they would seize most of the company’s assets — including CWT’s stake in a logistics unit, properties in the US and the UK, and golf courses in China — unless CWT makes good on payments tied to a HK$1.4 billion (RM742 million) loan taken out in September.

CWT was given a deadline till 9am today, the company said in a statement to the Hong Kong stock exchange that didn’t identify the lenders.

The setback suggests HNA is still struggling to cope with its debt after embarking on more than US$25 billion (RM103.5 billion) of asset sales since 2018, unwinding one of the biggest global acquisition binges in Chinese history.

HNA units have rarely disclosed threats of imminent asset seizures despite having missed payments in the past.

The statement from CWT, whose holdings include property in London’s Canary Wharf financial district, could be a sign that creditors’ patience is wearing thin.

For lenders and bondholders navigating a rising number of defaults in China, the question is how much leeway to give HNA as the company tries to restructure.

The group repaid a yuan-denominated note after a delay last month, one of several Chinese borrowers to miss payment deadlines only to come up with the cash shortly thereafter.

“HNA is far away from being sustainable,” said Warut Promboon, managing partner at credit research firm Bondcritic Ltd.

“The asset sale helps, but we believe the governance of the whole structure is difficult.

“We also believe liquidity transfers between entities are not that easy, hence the sporadic defaults of the subsidiaries,” Promboon said.

HNA, a poster child for runaway Chinese corporate debt that became a major target of Beijing’s two-year campaign to curb financial risk, declined to comment beyond the exchange statement.

The thinly traded 2021 dollar bonds of HNA Group (International) Co Ltd dropped to a range of 72 cents to 80 cents on the dollar yesterday, traders said, from around 84 cents on Monday.

CWT shares were suspended in Hong Kong. They’ve tumbled 59% over the past year.

CWT — which had almost HK$25 billion of assets at the end of 2018 — said in the statement that it’s been negotiating with lenders.

The missed payment led to a cross default under a term-loan facility, which has about HK$766 million outstanding, CWT added.

CWT Pte Ltd (CPL), a unit of CWT, has a S$100 million (RM306.36 million) note due tomorrow and another bond of the same amount due in March next year, according to Bloomberg- compiled data.

An auditors’ report contained in CWT’s 2018 annual results said there could be “material uncertainties” within the firm that “may cast significant doubt on the group’s ability to continue as a going concern”.

“We hold the view that CPL will pay its Singapore dollar bonds due on April 18 as CPL holds assets and has ongoing businesses,” said Ezien Hoo, a credit analyst at Oversea Chinese Banking Corp. “But its parent defaulting may complicate the process and there may be delays.” — Bloomberg