HNA Group’s floundering continues. The conglomerate has cycled through a variety of schemes to raise liquidity to meet its debt obligations and its various airlines have struggled to pay fuel bills or aircraft leases. The company has even gone so far as directly asking its own employees for loans. Another strategy that some units have pursued is through IPOs or share sell-offs. Unfortunately, organizing an IPO or a large-scale sell-off of shares in a short period of time is no small task and moving too quickly can lead to conflicts with regulators. Most recently, trading of shares of the Spanish firm NH Hotel Group was suspended on the Luxembourg stock exchange, just as HNA seeks to sell-off its 30 percent share. No reason was given for the suspension by Spanish regulators.
HNA’s efforts to raise funding to handle its mounting suffered another setback when Spanish regulators suspended the trading of shares of NH Hotel Group
At the same time, as HNA-owned Hong Kong Airlines is considering an IPO and issuing convertible bonds to raise liquidity. Ironically, the issue of high yield bonds, while helping HNA and various units meet short-term liquidity needs, has contributed to the ballooning of the conglomerate’s debt. It is estimated that the company’s total debt may be as high as $94 billion.
The suspending of trade for NH Hotels should serve as yet another reminder to HNA’s leaders that converting shares into liquidity rapidly is not an easy or quick solution for the company to meet its debt obligations. Of course, the company may have few other options in the short-term to stay afloat, and the company is grasping at any potential lifeline it can to raise funds. If the conglomerate continues to suffer setbacks in its efforts to sell shares or launch IPOs, it isn’t clear how it can raise more funds to handle its debt.
HNA Group already called off the high-profile Gategroup IPO at the eleventh hour believing not enough liquidity would be raised to reflect the value of the Swiss airline caterer. The IPO could have given Gategroup a value as high as $2.8 billion and the company hoped to raise $1.4 billion from the move.
Moreover, at least six of the group’s units suspended trading on Chinese stock exchanges after incurring major losses at the start of this year. One of the units that suspended share trading was Caissa, the integrated airline-tour operator.
With trading of many prominent HNA units already suspended, it doesn’t seem likely that new IPOs from subsidiaries will be successful
Incidents like these really beg the question: is there anyone still interested in acquiring shares of HNA units? Given the volatility of these companies in their efforts to raise funds and their inability to cover their basic operating costs, investing in an HNA unit does not seem to be a prudent move right now. Moreover, if shares of HNA units are already struggling on Chinese exchanges, it doesn’t seem likely that new IPOs will enjoy more substantial confidence from investors.
Regulators too are becoming increasingly wary of HNA, in part because of the company’s nebulous ownership structure. This concern is primarily associated with high-profile purchases of foreign companies. However, the HNA’s shaky finances could prove concerning enough to complicate sales of assets HNA already owns abroad.
The good news, at least, is that if the sale of the 30 percent stake in NH Hotels will be allowed to go forward, there will likely be little or no issues finding buyers. While the reputation of HNA subsidiaries has been somewhat tainted by the controversy surrounding their parent company, the selling off of shares in prominent international firms, such as the stake in Hilton Worldwide Holdings Inc, have gone off without a hitch. HNA’s share of NH Hotels is valued at around $758 million. It’s also possible that the conglomerate may eventually decide to keep its shares if they don’t receive a sufficient offer, but the conglomerate may not have a choice due to its ever-mounting debt.