HNA Group

Hainan Airlines weighs asset restructuring as parent HNA charts new course

PUBLISHED : Thursday, 11 January, 2018, 4:55pm
UPDATED : Thursday, 11 January, 2018, 11:42pm

Hainan Airlines Holding, the Shanghai-listed unit of debt-ridden HNA Group, said it is making plans that may involve a major asset restructuring, adding uncertainty to the outlook for its parent.

Shares of Hainan Airlines were suspended from trading on Wednesday, at the request of the company pending an announcement. The suspension come one day after HNA said it would use more shares in the listed firm as collateral to meet the holding company’s cash needs.

“Important matters related to the company are being planned,” Hainan Airlines said in a filing to the Shanghai Stock Exchange. “It is still unknown whether these plans will amount to a major asset restructuring.”

The company did not specify when the shares would resume trading.

The Chinese conglomerate has risen to international prominence amid a global buying spree that saw it build up an empire of strategic assets. These include hotel group Hilton Worldwide Holdings, airline catering giant Gategroup, aviation servicing company Swissport, and a large shareholding in Deutsche Bank, among others.

The company resorted to loans to fund the asset purchases, resulting in a high gearing ratio.

It remains to be seen whether a potential asset restructuring involving the listed air carrier is related to parent HNA’s revamp plans.

Hainan Airlines declined to comment on the matter.

Meanwhile, two fund managers said it is highly likely that some assets would be restructured to help bail out the parent group.

HNA is under pressure to repay loans after some banks were said to have frozen unused credit lines to its units after they missed payments, according to Bloomberg.

Hainan Airlines, founded by Chen Feng in 1993, has yuan-denominated A shares and hard-currency B shares listed at the Shanghai exchange. The company counts US billionaire George Soros among its early investors.

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Hainan Airlines has a fleet of more than 300 aircraft and serves about 1,400 domestic and international routes.

The airline posted a 19 per cent on year decline in profit for the first three quarters of 2017. Net income between January and September totalled 2.76 billion yuan (US$424 million), compared to 3.14 billion yuan in 2016.

The company’s A shares were little changed in 2017, closing the year at 3.19 yuan, or 0.02 yuan below its closing price a year earlier.

The shares were last quoted at 3.25 yuan before the trading suspension took effect. The market value of the airline’s Shanghai listed shares totalled more than US$8.4 billion.

“To a certain extent, the airline company’s future will hinge on its parent’s restructuring, rather than its own fundamentals,” said He Yan, a fund manager at Shanghai Shiva Investment. “Investors need to be patient before major announcements are made.”

HNA ’s opaque ownership structure was questioned by overseas regulators including those in Australia and Switzerland.

Hainan Airlines, under the direction of HNA, has been loading up on shares in smaller air carriers including Tianjin Airlines and Yunnan Lucky Air.

Meanwhile, Asia Jet Partners, part of HNA, is suing Wild Wing and Asia Wing, as well as two businessmen – John Zwaanstra and John Pridjian – who control the two companies. The suit, filed to the High Court in Hong Kong, seeking a compensation of HK$17 million (US$2.2 million) for failure to pay management fees for three private jets since January 2017.

According to a court document, Asia Jet accused the two businessmen of wrongfully terminating the agreement and flying the jets back to the US without notifying the private jet operator.