China’s HNA considers IPO for its Swiss airline catering subsidiary Gategroup

S&P Global Ratings downgrades HNA’s creditworthiness on the same day on concerns over its debt pile and rising funding costs

PUBLISHED : Wednesday, 29 November, 2017, 2:42pm
UPDATED : Wednesday, 29 November, 2017, 10:48pm

Chinese conglomerate HNA Group is considering an initial public share offering for Gategroup Holding, the airline caterer it bought for US$1.5 billion in cash last year in a deal that is facing regulatory scrutiny from the Swiss authorities.

Zurich-based Gategroup, the world’s second-largest air caterer, said Tuesday that it and its main shareholder, HNA Aviation Air Catering (Hong Kong), were evaluating the SIX Swiss Exchange in Zurich as a potential listing location, but the structure and timing of any IPO were yet to be determined.

On the same day, S&P Global Ratings cut the conglomerate’s creditworthiness assessment to B from B+, due to concerns over its “significant debt maturities” and “meaningfully higher” fundraising costs.

HNA, which started out as the small domestic airline Hainan Air, has spent tens of billions of US dollars on overseas acquisitions in the past few years, including stakes in Deutsche Bank and Hilton Worldwide Holdings, and has turned itself into a global conglomerate.

Behind China’s boldest dealmaker HNA are billions in pledged shares

In doing so it has taken on huge amounts of debt and has faced increasing regulatory scrutiny at home and overseas, constraining its ability to raise funds.

“We base the revision on our view of HNA Group’s aggressive financial policy and risks over tightening liquidity,” said Andrew Mayes and Sharad Jain, analysts for the rating agency in a statement.

“HNA Group has significant debt maturities over the next several years and its funding costs are meaningfully higher than that of a year ago.”

The analysts said they would closely monitor the conglomerate’s access to capital markets and funding costs to determine whether additional actions are necessary.

“B” is a “speculative grade” and is given to an entity that is “more vulnerable to adverse business, financial and economic conditions, but currently has the capacity to meet financial commitments”, according to S&P’s credit scale system.

“B” is five tiers away from the lowest investment grade of “BBB-”.

We base the revision on our view of HNA Group’s aggressive financial policy and risks over tightening liquidity
Standard and Poor’s analysts

S&P has also put UDC Finance, a New Zealand-based asset finance firm that HNA agreed to buy for NZ$660 million (US$456.4 million) in January, on CreditWatch with negative implications.

The agency said it would likely lower UDC’s ratings if the sale of the company by ANZ Banking Group to HNA was successfully completed.

Last Friday, the Swiss Takeover Board said HNA had given incorrect shareholding information about two of its stakeholders, Guan Jun and Bharat Bhise, in the Gategroup offer prospectus. It also failed to disclose the two were acting as trustees holding shares for some of HNA’s top executives, who should have been listed as beneficial owners in the prospectus, the board said.

China’s HNA accused by Swiss watchdog of giving ‘untrue’ details during Gategroup takeover

The board had asked Ernst & Young AG, the Swiss arm of professional services firm EY, to examine whether HNA’s top executives had complied with Switzerland’s minimum price rules and best-price regulations. HNA had to pay 50,000 Swiss francs (US$50,780) in fees for the proceedings, and could face penalties. Earlier in the year the board had also asked HNA to clarify its ownership structure, given changes during the acquisition process.

HNA, in response, said it had provided the necessary information and the board’s action “doesn’t have any impact on the validity of the takeover of Gategroup as such, which has already successfully completed”.

US$416m acquisition of controlling stake by HNA in US-based Global Eagle Entertainment called off

In July, HNA abandoned a US$416 million investment in US in-flight service company Global Eagle Entertainment after failing to receive US regulatory approval.