HNA Capital is considering selling a 20% stake in Bohai Capital – the public company that owns aircraft lessor Avolon – amid a liquidity crunch at parent HNA Group, according to two sources familiar with the deal.
At least one of the sources has seen the term sheet, FlightGlobal understands.
While HNA Capital has pledged almost all of its 34.6% directly owned stake in Bohai Capital to a series of Chinese securities companies, two sources tell FlightGlobal that this would not necessarily affect the selling down of those shares as the proceeds would be used to pay back debts. HNA's total stake held through HNA Capital and other affiliates reaches some 52%.
It is unclear whether the transaction, which was originally marketed towards the end of last year, is still live.
On 17 January, Bohai Capital halted trading of its stock for 10 days due to "major issues involving the company [HNA Capital]".
Hainan Airlines, also HNA-majority-owned, suspended trading under the auspices of "preliminary discussions point towards a major asset reorganisation".
Nearly a month later, both stocks remain halted with no further word from Bohai, Hainan or HNA.
It is significant that, rather than full ownership, HNA holds only a stake in Bohai, which in turn owns Avolon along with container leasing company Seaco as well as other assets. A source familiar with how the group operates told FlightGlobal in late November: "There is zero likelihood that Avolon will be sold."
Shifting a 20% stake in Bohai to another shareholder would not make a sale of Avolon any more possible than under current ownership. It appears that all HNA could do with a share sale is to raise liquidity to repay maturing debt. The company has about CNY225 billion ($36 billion) maturing before 2025, of which about CNY25 billion will come due in 2018, according to Bloomberg data.
Roadblocks remain ahead for any such deal. HNA would have to attract a buyer that wants to buy a minority stake in a company that among its several businesses touts an aircraft lessor (Avolon) and a container leasing company (Seaco) as its flagships.
To service its looming debt maturities, HNA looks more likely to dispose of non-core real estate assets than find a buyer interested in a minority stake of Bohai. In fact, since December, HNA has put major New York properties up for sale. This includes 245 Park Avenue – for which the company paid $2.2 billion only last year – Bloomberg reported on 8 February, citing marketing documents.
Last year, Avolon made intercompany loans of $365 million to subsidiaries of Bohai Capital. These were repaid on time and in full prior to the end of the third quarter.
In December, Fitch said Avolon's ratings could be impacted by its ability to maintain "structural separation from its direct owner Bohai's majority owner, HNA Group".
The ratings agency added in the 6 December report: "Recent developments with respect to certain HNA subsidiaries indicate increased constraints on the overall organisation and increase the potential for additional capital or liquidity calls on Avolon."
However, its status as a Bohai-owned entity appears to give the world's third-largest aircraft lessor some separation from HNA's woes.
Avolon declined to comment for this article.
Source: Cirium Dashboard
