The creditors of bankrupt mainland conglomerate HNA Group took another step towards collecting on bad loans to the parent of China’s Hainan Airlines this past week as an apartment in Hong Kong’s Mid-Levels was put up for sale in what could be one of the city’s biggest distressed-asset deals ever.
A 4,600 square foot (427 square metre) penthouse at 39 Conduit Road, which had been purchased by the cash-strapped mainland conglomerate in 2016, is being sold through a tender managed by Savills, as confirmed by the property consultancy to Mingtiandi.
With its seven-metre-high ceilings, the four-bedroom luxury home could bring in as much as HK$552 million ($71 million), according to local market analysts, as Hong Kong’s residential property market rebounds with home prices predicted to rise 2 to 3 percent in the remaining months of 2021, according to property consultancy Knight Frank.
The disposal of the luxury home is being managed by receivers at PriceWaterhouseCoopers, which just last month put up for sale a Melbourne conference centre that had been acquired by HNA in 2016. Once one of China’s most prolific investors, HNA formally declared bankruptcy in January this year after a string of defaults, and its restructuring plan was formally approved by mainland courts in February.
Market Rebound Underwrites Sale
“As this is one of the largest non-performing assets available for sale in the market in the past 10 years and the luxury residential market is robust now, I believe that the property could be easily disposed at the market,” said Vincorn Consulting and Appraisal’s managing director Vincent Cheung.
Cheung estimates that the property could sell for between HK$100,000 and HK$120,000 per square foot, which would bring the final sale price to as high as HK$552 million.
Savills confirmed that it has opened the tender, which is set to run until 27 September, noting that HNA’s soon-to-be-sold asset is among the trophy properties in an area that has already notched some of Hong Kong’s priciest sales.
A unit of HNA, Billion Able Corporation, which listed group founder Chen Feng as director, had purchased penthouse unit 45A in 2016 at a price of HK$433 million ($55.7 million). That buy took place when HNA was just beginning an ill-fated series of Hong Kong acquisitions that at one time included four development plots in Kai Tak, as well as luxury homes in Repulse Bay and on Victoria Peak. HNA in 2019 sold the last of its Hong Kong development sites to Wheelock for a HK$704 million loss.
“Individual units of 39 Conduit Road had broken the Asian record of the highest unit price per square foot previously,” Savills said. The brokerage pointed out that top-end units at CK Asset’s 21 Borrett Road project, which is located less than 3 kilometres (1.9 miles) east of HNA’s location, also in the Mid-Levels, had sold for up to HK$136,000 per square foot, with sales averaging HK$130,000 per square foot.
“Duplex 45A is the only special duplex available at 39 Conduit Road currently,” Savills said. “It is anticipated that the quality deluxe unit would attract attention from substantial investors via the tender.”
Asset Disposals Continue
The penthouse is being liquidated after Thing On Capital, a private affiliate of Hong Kong-listed Thing On Enterprise, had sued HNA Group affiliates after the group had failed to meet a 21 June deadline for payment on a HK$180 million 2019 loan which had been used to pay the mortgage on the luxury home.
HNA still faces some $187 billion in creditor claims, according to figures from Bloomberg.
Hong Kong’s Land Registry records showed Yat Kit Jong and Man Chun So as receivers of the apartment, the South China Morning Post reported. The addresses registered by both parties were PricewaterhouseCoopers’ offices in Central, with the news account citing official records indicating that the receivers had been appointed on 16 March 2020.
PwC is also the receiver for the Aitken Hill Conference Centre, a sprawling commercial complex near the Melbourne airport. The property was acquired by HNA for A$100 million (now $71 million) in late 2016 and hit the Aussie market in July.
In March last year, Hainan government officials took control of HNA Group after a string of defaults and asset seizures and appointed two state officials to leadership roles on the company’s board of directors. Just over a month after the takeover, HNA sold its Shanghai office tower to China Cinda Asset Management for RMB 3.6 billion ($510 million) to raise funds and pay off the group’s debts.
In 2019, creditors seized control of HNA’s assets in Singapore, China and the US after a unit of the group, CWT International Ltd, defaulted on a HK$1.4 billion loan from the year before.
Within the same year, the group sold a pair of historical mansions on Victoria Peak for HK$550 million ($70 million) at 22 percent less than the site’s original price, only a year after purchasing it from Hong Kong developer Crown Empire.
Just under three years ago in 2018, HNA put 82 properties on the market after defaulting on a RMB 300 million ($43.82 million) loan obligation in the previous month.