Shares of HNA Group subsidiaries rise after government steps in to help manage liquidity
- Shares of Hainan Airlines rise 2.8 per cent, HNA Technology Investments surges 28.9 per cent
- Hainan provincial government, Chinese civil aviation administrator and policy lender China Development Bank form special task force
The listed subsidiaries of HNA Group rose on Monday after the mainland Chinese aviation and tourism conglomerate confirmed the formation of a government task force that would help it manage its liquidity.
On Saturday, the company – whose debt stood at 525.6 billion yuan (US$75 billion) by June 2019 – said representatives from the Hainan provincial government, China’s civil aviation administrator and policy lender China Development Bank had formed the special task force, which would step in and support its operations. It had sought help from the relevant authorities to reduce its liquidity risks, it said.
The announcement ended weeks of speculation that Chinese regulators would take over the management of the embattled conglomerate. In a filing to the Hong Kong stock exchange on Sunday, HNA Technology Investments Holdings, a unit of HNA Group, said its parent firm’s management team remained unchanged after the establishment of the task force.
The shares of Shanghai-listed Hainan Airlines, a key asset, jumped 2.3 per cent to 1.82 yuan on Monday. HNA Technology Investments saw its H shares surge 20 per cent to 54 HK cents. Meanwhile, HNA Technology, another unit of the conglomerate, jumped 5.8 per cent to 3.08 yuan.
“Government support is being viewed as a positive move helping the HNA Group wade through the current turbulence, after its airline assets fell victim to the coronavirus outbreak with dwindling passenger and cargo volumes,” said Ivan Li, money manager at Shanghai-based Loyal Wealth Management. “But the market will still be closely watching whether a major restructuring of the group and Hainan Airlines will take place in future.”
HNA seeks Hainan help as coronavirus outbreak imperils debt workout plan
“The creation of a working group to ease HNA’s liquidity issues is credit positive for both financial institutions and aircraft lessors, because it will help support an orderly resolution and restructuring of HNA, in addition to reducing contagion risks,” said Sean Hung, senior analyst at Moody’s Investors Service.
“HNA has faced liquidity issues since 2017, with the recent outbreak of the coronavirus exacerbating the situation given much lower passenger volumes. We expect financial institutions, including banks and aircraft lessors, will need to provide financial support to HNA in the form of refinancing and rental payment relief, as well as extensions to loan maturities per the government’s direction. However, these measures do not necessarily mean all of HNA’s debt and assets will be taken over by the government. We expect the working group will likely divest some of HNA’s assets, for example, certain equity stakes and noncore assets, to improve HNA’s financial position for debt repayment, and ultimately look for strategic investors after the clean-up.”
Hainan Airlines will be split up, according to Bloomberg, with different parts of the company merging with other Chinese state-owned carriers, as the coronavirus epidemic adds pressure on the airline to repay its debt. HNA Group chairman Chen Feng said earlier that the company would have to delay salaries because of a capital crunch.
HNA Group fate in balance as coronavirus lockdowns scupper debt workout plan
Air travel has plunged by 75 per cent year on year in China following the outbreak. Chinese airlines have had to slash capacity by 80 per cent during the course of February, Jefferies analysts led by Andrew Lee said in a report last week.
The Chinese media has reported that the local government and aviation regulators were considering a plan to restructure the assets of HNA Group. But it has proved difficult for the government to take over the juggernaut as a whole, because of its staggering size and heavy debt.
The group, which can also count Hong Kong Airlines among its myriad assets, has been under intense pressure to repay debt that amounted to US$108 billion at its peak in 2018. By the end of June last year, it had slashed its debt by about 30 per cent through assets sales.
