HNA Reportedly Seeking HK$5B to Refinance Kai Tak Project

HNA is reportedly seeking to borrow as much as HK$5 billion ($637 million) to refinance and begin construction on its sole remaining condo project in Hong Kong’s Kai Tak area, just two months after the mainland conglomerate sold the third of four residential sites in the former airport location to Wheelock for HK$6.36 billion.

Hong Kong International Construction Investment Management Group (HKICIM), the group’s primary real estate subsidiary in Hong Kong, has reportedly spent the last two weeks working with Singaporean lender DBS to arrange a loan of HK$4 billion to HK$5 billion for the project, according to an Apple Daily account.

The loan would enable HNA to push forward independently with its development of Kai Tak 1L Site 2, which it purchased in March 2017 for HK$7.44 billion (then US$960 million).

HNA Interest Rate Doubles in One Year

The company is said to be aiming to invite five to six banks to provide its fresh financing for the development at a rate of Hong Kong Interbank Offered Rate (HIBOR) plus three percent interest, while the time period of the loans remains to be confirmed.

In June last year HKICIM secured a one-year bridge loan of HK$2.2 billion from DBS and Chiyu Bank at a rate of HIBOR plus 1.9 percent for developing its project on the 9,842 square metre (102,063 square foot) plot. That loan is due by the end of next month.

Characterised by one Hong Kong-based banker as “a healthy spread,” HNA’s proposed cost of financing its prospective loan may reflect the Chinese conglomerate’s deteriorating financial situation over the last year. In February, S&P Global Ratings lowered its credit rating for HNA to ccc+ from b, effectively bestowing junk status on the debt of one of China’s biggest borrowers.

In March of this year China’s biggest supplier of aircraft fuel threatened to cut off HNA’s supply of jet fuel after the airline operator failed to pay five months of overdue bills.

Moving Forward With Development of Final Kai Tak Site

HKICIM purchased the Kai Tak residential plot in March 2017, after paying a combined HK$20 billion for three sites other sites in the harbourfront area of Kowloon East since November 2017.

After the Hainan-based conglomerate lost the faith of mainland authorities it has been conducting a global panic sale of real estate assets, including its Kai Tak sites, in an effort to reduce its liabilities and bring down its cost of borrowing.

HNA disposed of a plot in Kai Tak to Hong Kong developer Wheelock and Company for HK$6.36 billion ($811 million) in March, as part of its efforts to raise cash to pay off $100 billion debts. The sale to Wheelock came after the mainland group had already sold two of its Kai Tak sites to Henderson Land Development for HK$16 billion ($2 billion) in February.

Kai Tak Area Remains a Favoured Location

Despite previous predictions that the Hainan conglomerate might offload its remaining site to generate more cash, the reported decision of keeping the site to itself secures a spot for HNA in the sought-after Kai Tak area.

Two weeks ago, Sun Hung Kai Properties paid the largest sum ever of HK$25.16 billion for a residential site in the erstwhile airport area, beating four bids. The record-breaking land sale was a sign that Hong Kong developers are optimistic about the development of the Kai Tak area according to Thomas Lam, Senior Director at Knight Frank.