China's HNA Group plans to sell its 25% stake in the real-estate business spin-off of Hilton Worldwide Holdings – Park Hotels and Resorts Inc – as it rushes to pay down its excessive borrowing, the South China Morning Post reported.
The Chinese conglomerate, which has spent more than US$40 billion in the past three years amid a high-profile international acquisition spree, is already planning huge job cuts and accelerating
the sale of overseas assets, as the Chinese authorities crack down on companies’ offshore investments, particularly in real estate, hotels, and movie studios.
Aggressive offshore mergers and acquisitions by Chinese firms have raised concern in Beijing over capital outflows and financial risks taken on by China’s banks.
The quarter stake in Park Hotels and Resorts is worth around US$1.4 billion, based on its current market cap of US$5.6 billion.
HNA declined to comment on the sale
The report also said that HNA is believed to be bringing down the axe on a massive 100,000 jobs this year, a quarter of its global workforce, according to a recent report by Risk Event-Driven and Distressed Intelligence (REDD).
Earlier this year, the company sold an office building in Sydney for US$205 million and then unloaded two land plots in Hong Kong for HK$16 billion (US$2.04 billion).
The group has reversed its overseas shopping spree and has been focusing on selling assets in recent months to repay debts.
HNA told creditors it was facing a potential shortfall of at least 15 billion yuan (US$2.3 billion) in its ability to repay debt in the first quarter, sources with knowledge of the matter said.
Beijing has put HNA on a shorter leash
HNA Group has suspended stock trading of a number of its listed units in China, including HNA Holdings, HNA Infrastructure, and HNA Investment Group, citing potential “significant asset restructuring” deals.
HNA Group chairman Chen Feng said that liquidity problem exists “because we made a big number of mergers,” even as the external environment became more challenging and China’s economy “transitioned from rapid to moderate growth,” impacting the group’s access to new financing, Reuters reported in January.
HNA, among other high-profile overseas assets acquirers, has been falling under tougher government scrutiny on “irrational” overseas buying.
Aviation Group also being affected
Underlining its liquidity problems, HNA Group has amassed an estimated 3 billion yuan (US$476 million) bill with a state-run China National Aviation Fuel Group Ltd (CNAF), the country’s near-monopoly marketer and distributor of aviation fuel, Reuters reported, quoting two oil industry sources.
“HNA has not stopped fully paying its bills, but it only has paid a small amount at a time, so the outstanding (balance) has grown bigger and bigger,” said a senior oil industry executive with direct knowledge of the matter.
A second executive briefed on the situation said the problem “really deteriorated over the past several months.” Both executives requested anonymity due to the sensitive nature of the matter.
HNA has controlling stakes in Hainan Airlines Holding Co and 12 other carriers in China and Hong Kong.
Will fuel debts be swapped for a stake in an airport?
HNA Group said in a statement last week that Hainan Airlines “maintained positive and friendly communication” with CNAF. “At present, all businesses are carried out steadily,” it added, without elaborating.
“CNAF has initiated many exchanges with HNA, verbally and in writing, but that has been barely fruitful,” the oil industry executive said.
Solutions proposed by the fuel supplier have included swapping the debt for a stake in Meilan Haikou Airport, which is controlled by HNA.
CNAF has continued to supply fuel to HNA airlines, concerned about the impact of suspending sales for airlines that make hundreds of international and domestic flights every day.
China’s central government state assets regulator and the Civil Aviation Administration have been briefed on the matter, but neither has given clear guidance over how to sort out the situation, the report said.
Nol van Fenema