China’s HNA Group is in talks with leading Hong Kong developer Sun Hung Kai Properties for a loan to refinance its repayment liabilities in connection with its residential mega-project in the city’s Kai Tak area, according to a media report.
The news comes amid a global fundraising drive by the Hainan-based firm, as HNA faces a cash crisis following a more than $40 billion string of acquisitions over the past two years. The company is now planning to shed some $5 billion in assets by April, according to a statement by its CEO.
HNA is said to be willing to pay an interest rate of 9 percent per year for the loan from Sun Hung Kai Properties, which is of unknown size. The financing will reportedly be used to repay the company’s bridge loans and finance the development of the quartet of land plots it purchased for a total of HK$27.2 billion ($3.5 billion) in Kai Tak in 2016 and 2017.
HNA Gropes for Financing Options for Kai Tak Projects
The reports of the proposed loan follow attempts by the mainland conglomerate to partner with developers in order to build its Kai Tak property project as a joint venture, according to a source familiar with the deal that spoke with Mingtiandi.
After the joint venture offer failed to generate interest from the market, HNA now appears to be opting for a non-bank loan arrangement with Sun Hung Kai. If HNA is unable to pay back the loan, the Hong Kong developer would have the opportunity to gain a stake in one of the city’s largest developments at a substantial discount, the source added.
Under new regulations issued by the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank in June, bank loans to developers for construction finance are capped at 40 percent of the site value. Loans offered by the financing units of property developers, however, are not bound by the HKMA’s rules, as they are beyond the jurisdiction of the authority — instead being regulated by the Money Lender Ordinance, which is enforced by the Commissioner of Police.
HNA won the four plots of land in Kai Tak, the former site of Hong Kong’s international airport in Kowloon, by bidding well above market prices at government auctions. The company paid more HK$27.2 billion ($3.5 billion) to purchase a total of 36,865 square metres (396,811 square feet) of Kai Tak land, which averages out to HK$13,400 per square foot.
HNA is developing the four plots into a single project, which commenced construction in October and is expected to commence sales in the third quarter of 2019.
Hong Kong Financing Search Part of HNA’s Global Cash Crunch
Cash pressure is mounting on the acquisitive airline turned financial conglomerate following its global shopping spree. HNA is reported to have missed payments to a number of Chinese banks in recent weeks, prompting three lenders to freeze some of the company’s unused credit lines. The group is also said to have walked away from late-stage talks last week to buy a stake in Value Partners Group, a Hong Kong-based fund manager.
HNA’s financing crisis was also highlighted by a recent report that the company is considering selling two office buildings in London’s Canary Wharf, which it bought for a combined £366 million ($503 million). The assets would probably transact for less than their purchase price.
Hong Kong International Construction Investment Management Group, a Hong Kong-listed subsidiary of the group, has recently been approved by its shareholders to inject HK$633 million ($81 million) into a HK$3.8 billion ($487 million) fund that invests in a plot of land HNA acquired in Kai Tak, in partnership with HNA-owned Hisea International. The HNA unit invested HK$728 million ($93.3 million) in a similar fund in October for another plot of land.