Debt-laden Chinese conglomerate HNA Group, which owns or has stakes in several domestic and foreign carriers including its flagship operator Hainan Airlines, saw borrowing costs surge to 32.1 billion yuan (US$5.1 billion) in 2017 from 20.2 billion yuan a year earlier, according to figures derived from an annual report released last week, Bloomberg reported.
Earnings before interest and taxes rose too but not enough to cover the payments - a rarity for a non-financial company with assets of over US$100 billion, the Bloomberg report noted, adding that
total debt jumped 21% to 598.2 billion yuan, or about US$94 billion.
Earlier this year, HNA reportedly told Chinese lenders that it planned to sell about US$16 billion in assets during the first half of 2018. The group is on its way, having disposed of US$13 billion this year, with the biggest being the US$6 billion sale of its Hilton Worldwide stake.
HNA has taken steps to reduce its financial burden
Efforts to further reduce debt levels continued last week with a Reuters report that HNA's subsidiary Hainan Airlines is in the process of selling a fifth of its preference shares in Brazil’s carrier Azul SA to United Continental subsidiary Calfinco for US$138.3 million. Hainan Airlines paid US$450 million for a 23.7% stake in Azul in 2016. As of April 24, it held 22.4% of the Brazilian airline’s preferred shares or a 21.6% economic stake, according to Azul’s website. It said its economic stake would fall to 17.28% after the deal.
In related news, the Wall Street Journal (WSJ) quoted unnamed sources as saying last week that the Hainan-based conglomerate was in exclusive talks to sell its European and Canadian transportation and logistics business to infrastructure investor I Squared Capital for more than 1 billion euros (US$1.21 billion).
Trying to get into Beijing’s good books?
Other than TIP Trailer Services - Europe's largest truck and trailer leasing company - the WSJ report didn't identify the other HNA transportation and logistics businesses it might sell. HNA purchased the Amsterdam-headquartered truck and trailer leasing company for an unspecified amount from GE Capital in June 2013.
Analysts, meanwhile, reacted cautiously to the reported plans that HNA would sell its transportation and logistics-related units.
The South China Morning Post (SCMP) quoted Corrine Png, chief executive of Singapore-based independent research firm Crucial Perspective as saying that “HNA is trying to get into the good books of the Chinese government, following increased regulatory scrutiny on its complicated structure, aggressive expansion, leveraged financial position and lack of transparency.
Dense fog still lies over their plans
"Therefore, it would be much easier for HNA "to secure financing and regulatory approvals for investment projects that are aligned with China’s national objectives,” like the pet project of China's President Xi Jinping along the old Silk Road, known as the “Belt and Road Initiative, which was officially launched in 2013.
Selling its transportation and logistics assets would greatly diminish HNA's involvement in this ambitious project covering China, Southeast Asia, South Asia, Central and Western Asia, Middle East and Africa, and Central and Eastern Europe.
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