HNA Holding’s controlling shareholder pledges 56.1pc stake in firm as security for bank loan

Analysts suggest surprise move is desperate attempt to raise funds, possibly to pay for its recent HK$8.84 billion Kai Tak residential site acquisition

PUBLISHED : Monday, 05 December, 2016, 8:31pm
UPDATED : Monday, 05 December, 2016, 11:23pm

Shares in HNA Holding Group declined nearly 6.5 per cent yesterday after its controlling shareholder pledged 56.11 per cent of its stake in the firm as security for a loan – a month after the group paid a jaw-dropping HK$8.84 billion for its first residential site in Hong Kong.

The loan amount or purpose was not revealed.

The move also comes in the wake of a massive policy shift by Beijing, to stem capital flight by tightening scrutiny on outbound investments.

“It is unusual for the controlling shareholder of such a big mainland conglomerate to pledge nearly all its shares as security for a loan. “It indicates the firm badly needs financing,” said Andrew Lam, director at accountancy firm BDO.

HNA Holding Group’s controlling shareholder, Hong Kong HNA Holding Group, has pledged 6.39 billion shares in the listed vehicle “as security for certain banking facilities or guarantees”, according to a filing with the Hong Kong stock exchange on Monday.

Pledging more than 50 per cent of a listed company’s shares in exchange for financing definitely represents negative news for the company
Andrew Lam, director, BDO

The pledged shares represent approximately 56.1 per cent out of its total 57.11 per cent of the total issued shares in the company as December 5.

Lam said he would not rule out the possibility of tighter government controls on overseas investments, leaving the Hong Kong-listed parent firm in desperate need of further funding.

“Pledging more than 50 per cent of a listed company’s shares in exchange for financing definitely represents negative news for the company,” he said.

“Using shares as the guarantee for a loan is easier for firms which do not have a lot of assets in Hong Kong.”

He even suggested the proposed loan structure might be a last resort, as the controlling shareholder cannot use its mainland assets as collateral.

Shares in HNA Holding Group fell 6.35 per cent to close at 29.5 HK cents. Based on that price, the 56.1 per cent stake in HNA Holding is worth HK$1.88 billion.

Ivan Li Sing-yeung, head of research at Sinopac Securities (Asia), said the pledge may provide HNA with approximately HK$1 billion in cash, based on the HK$3.36 billion market capitalisation of Hong Kong listed HNA Holding Group.

“Brokers are likely to lend up to 90 per cent of the value of the pledged stocks, given the borrower is HNA, but it’s possible that they might lend just 50 per cent or even less,” Li said.

“It seems the controlling shareholder is desperate for capital,” Li said, adding the pledge represented significant risk for other shareholders, as such a large amount of stocks may be forcibly sold.

Brokers are likely to lend up to 90 per cent of the value of the pledged stocks, given the borrower is HNA, but it’s possible that they might lend just 50 per cent or even less
Ivan Li Sing-yeung, head of research, Sinopac Securities

On November 3, HNA won a residential site in the Kai Tak area of Hong Kong for HK$8.84 billion, more than double the market expectation of HK$4.25 billion to HK$4.58 billion.

The price tag translated into HK$13,500 per square foot, a record for a land sale in the area.

A document seen by the Post last week – said to be the minutes of a central bank meeting on cross-border capital controls – showed that until September next year, Beijing will ban the completion of deals involving investment of more than US$10 billion, mergers and acquisitions valued at more than US$1 billion outside a Chinese investor’s core business, and foreign real estate deals by state-owned enterprises involving more than US$1 billion.

“As HNA has few assets in Hong Kong, it is no surprise to see its controlling shareholders pledging shares as collateral for a loan,” said Alan Jin, a property analyst at Mizuho Securities.

He expects mainland Chinese firms to face higher interest rates than local companies, if they seek funding in Hong Kong.

Chen Xuesong, chief executive of HNA Infrastructure, a unit of the group, declined to comment.


business-article-page