HNA Group is not the most cautious shopper. After a debt-fuelled spending spree on non-core assets in recent years, the Chinese group is facing a wall of debt maturities careening closer every day.
Over the past couple of years, the airline-turned-conglomerate has amassed an asset portfolio that includes a meaningful stake in Deutsche Bank as well as real estate around the globe plus a 25% share in Hilton.
With lenders seeming wary of the highly leveraged company, which appears to lack government support, HNA has had to source liquidity fast.
During the past few months, HNA has been marketing for sale billions of dollars of real estate it acquired over the past few years. On 12 April, it emerged that the company is to sell Hawker Pacific, an aircraft management firm, to Jet Aviation for $250 million.
On 11 April, the company disclosed divestment of its Hilton stake, less than two years after becoming a shareholder. Getting out now means that HNA booked a 60% return on its $6.5 billion investment.
Earlier-than-expected exit from Hilton may have been a blow to HNA's long-term goals, but the deal offers immediate liquidity.
So far, Beijing appears to watching – but not assisting in – HNA's restructuring. But could there be a role for the government to help the company?
Consider the recent developments with Anbang Insurance Group, another Chinese conglomerate facing a series of debt maturities.
In March, the China Banking Insurance Regulatory Commission approved a plan for the China Insurance Security Fund to inject CNY60.8 billion ($9.66 billion) – equivalent to a 26% stake – into Anbang.
Insurance and the network it supports are critical to China – so saving Anbang, despite its spendthrift ways, is favoured by Beijing.
A statement issued on 28 March indicates the conditions of the bailout. Anbang will refocus its efforts towards its core expertise. "The company will in particular welcome private companies in the area of pension insurance, healthcare, internet and technology, and those that share synergic resources with its core insurance business."
In the context of China's "One Belt, One Road" initiative, which focuses on infrastructure, it makes sense for HNA to hang on tightly to its aviation investments; this could be the very reason the Chinese government would step in to protect the group.
China is the world's fastest-growing aircraft market, with Boeing estimating a requirement for more than 7,200 jets, valued at $1 trillion, over the next two decades.
"The point at which China will displace the United States as the world's largest aviation market (defined as traffic to, from and within the country) has moved two years closer since last year's forecast," IATA said in an October 2016 forecast.
The airline body suggests that over the next 20 years, China will add 921 million new passengers for a total of 1.5 billion. These are staggering numbers.
Given HNA's dominance in Chinese aviation, could a bailout be in China's strategic interest?
There is no question that HNA is doing all it can to raise capital as maturities near.
The group has announced a reorganisation under which Hainan Airlines – a publicly listed company – will take over seven HNA business units, including Guilin Airlines, West Air, HNA Hotel Holdings and an overseas hotel operator. Hainan will also take HNA Aviation's stakes in Hainan Tianyu Flight Training, HNA Aviation Technology and SR Technics.
HNA's sales of skyscrapers and early divestments of profitable assets such as Hilton also show a devotion to raising critical liquidity.
But if HNA hits a roadblock and the market closes, there may be a case for Beijing to step in, as protection of Chinese airlines would fit with the nation's commitment to "One Belt, One Road".
Certainly, the projected near-doubling of commercial passenger traffic over the next two decades strengthens the case for supporting Chinese aviation – as does the precedent offered by the China Banking Insurance Regulatory Commission's action in backing Anbang, taken to safeguard all parties that would have been damaged in the wake of the insurance behemoth faltering.
Source: Cirium Dashboard
