HNA turns to private equity for funding with share pledge

FT 2018-02-21: Bankers say group is losing access to mainstream market as institutions pull away

 and  in Hong Kong

HNA Group, the heavily leveraged Chinese conglomerate, has turned to private equity company Pacific Alliance Group for finance amid pressure to raise cash and cut its debt. Hainan-based HNA, which started as an airline company before expanding into finance, announced on Wednesday that it had pledged about 1.4bn of shares — amounting to HK$3.1bn ($396m) — from one of its subsidiaries, to borrow from privately owned PAG Holdings. HNA said in an exchange filing that PAG Holdings, which is domiciled in the Cayman Islands, would have the option to buy up to 82 per cent of its stock, if the value of its pledged shares relative to the loan size falls below a certain threshold. One banker said the move is a sign that HNA Group might be finding it difficult to access mainstream markets as large international banks have either pulled back or have ruled out advising or financing the company. “Basically the taps have been turned off so they are looking at any way to raise financing,” the banker said. “There’s a good chance we will see debt restructuring this year.” Another banker said: “The number of banks that work with them has been whittled down, but in the past it had relationships with all the banks you’d expect them to work with.”

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HNA declined to comment. HNA had pursued an aggressive, debt-fuelled expansion strategy in recent years, spending roughly $40bn to snap up stakes in companies ranging from Deutsche Bank to Hilton Worldwide, the hotel chain. But its cash position worsened at the end of last year as the company began rolling over loans and delaying payments at some of its subsidiaries. Bank of America Merrill Lynch once provided investment banking services to the company but stopped last year, according to people close to the matter. BofA declined to comment. Other global banks such as Citi do not work with HNA as the company has failed to pass “know your customer” checks because of the opaque ownership structure of the group, people briefed on the issue said. However, some banks such UBS, JPMorgan and Credit Suisse still work with HNA, providing investment banking services such as advice, sources said. Citi, JPMorgan, UBS and Credit Suisse declined to comment. HNA has over the past few months begun selling assets and shares in an attempt to raise cash and restore confidence. Last week, the company announced the HK$15.8bn sale of two plots of land in Hong Kong to local developer Henderson Land. Earlier in the month, the group said it had cut its stake in Deutsche Bank from 9.9 per cent to 9.2 per cent, and then again days later to 8.8 per cent. HNA said in a regulatory filing that it had also lent out some of its remaining shares in the bank to raise funds.


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