What was once the site of one of Asia’s most challenging airports is rapidly turning into a lifesaver for China’s debt-addled HNA Group after the mainland conglomerate announced a deal yesterday that could provide it with a loan of as much as HK$3 billion ($383 million) from private equity firm PAG.
Just one day after selling two plots in the Kai Tak area last week for $2 billion, HNA Group pledged a nearly 41 percent stake in the company holding its remaining pair of projects at the former airport site to PAG, in return for an unspecified loan. The cash lifeline comes as the one-time acquisition omnivore gropes for a way to pay off debts built up during a $40 billion global buying spree over the past two years.
The loan from the Hong Kong-based private equity firm adds to more than $5 billion in cash that HNA has scraped together in the last two weeks through fresh credit and sales of properties in New York and Hong Kong.
Hocking Kai Tak Projects in Return for Cash
According to a filing to the Hong Kong exchange yesterday by locally-listed HNA subsidiary Hong Kong International Construction Investment Management Group (HKICIM), PAG had agreed on February 14th to provide the unspecified loan in return for the group pledging about 1.4 billion shares in HKICIM as collateral. Based on the current stock price of HKICIM at HK$2.17 per share, the pledged stock is worth approximately HK$3 billion ($383 million) and represents 40.98 percent of the company.
The deal also requires HNA to provide additional shares of up to 81.96 percent of HKICIM, “if the loan-to-value ratio falls below a prescribed threshold.” HNA acquired a controlling stake in HKICIM from Blackstone in 2016 for HK$2.62 billion when the developer was still known as Tysan Holdings.
HNA used the Hong Kong-listed subsidiary to spend a total of HK$27.2 billion buying up an adjoining set of four Kai Tak sites from November 2016 through March 2017 — while setting new records for land prices in the process.
HNA Adds New Meaning to Land Bank
Now, thanks to Hong Kong’s rising property market, that set of Kai Tak projects has become a lifeline after HNA just over one week ago agreed to sell two of the sites to Henderson Land for HK$16 billion ($2 billion). HNA had earlier been reported to be shopping for loans from property developers in Hong Kong with the Kai Tak projects offered as collateral.
Founded in 2002, PAG is an Asia-focused independent alternative investment management group with around $18 billion in assets under management. The partnership’s real estate division reached a $1.9 billion final closing on its Secured Capital Real Estate Partners VI (SCREP VI) fund in September last year, with a stated focus on loans for distressed situations.
HNA Sells Off in NYC and Sydney, London on the Way
HNA has been struggling since the mainland government’s crackdown on “irrational” outbound investments last year cut off the conglomerate’s access to cheap loans.
In December HNA was reported as struggling to pay off its short-term debt obligations, and the company that eagerly spent on stakes in Hilton Hotel Group and Deutsche Bank needs to pay off RMB 1 billion in bonds this quarter, and at least RMB 12 billion each during the third and fourth quarters of this year.
Facing this financial shortfall, Chen Guoqing, the brother of an HNA co-founder Chen Feng, sold off a mansion on Manhattan’s Upper East Side earlier this month for $90 million, and also this month, HNA Group sold the 1180 Avenue of the Americas office building in New York to Northwood Investors LLC for at least $300 million, according to an account in Bloomberg.
Taking this fire sale intercontinental, HNA Group was reported to be holding initial talks with investors about selling a pair of office buildings that it had purchased on London’s Canary Wharf for around 366 million pounds ($496 million).
In January, HNA sold an office tower in downtown Sydney, 1 York Street, to Blackstone Real Estate Partners (BREP) Asia fund for about A$200 million ($161 million).
Those asset disposals come in addition to HNA reporting that state-owned China Citic Bank had provided a RMB 20 billion ($3.2 billion) credit facility earlier this month. The conglomerate’s management reportedly revealed to its major creditors late January that it needed to come up with at least RMB 15 billion ($2.4 billion) in fresh cash before the end of March.