HNA Group Co. told creditors its ability to repay debt will face a potential shortfall of at least 15 billion yuan ($2.4 billion) in the first quarter, people with knowledge of the matter said.
The funding gap was among financial details HNA briefed major creditors and provincial government officials about during a meeting last week in Hainan, the people said, asking not to be named because the discussions are private. Some major lenders are considering banding together to form a committee that could exert more pressure on HNA, they said. HNA has about 65 billion yuan in debt coming due during the first quarter, one of the people said.
The projected shortfall takes into account HNA’s financing plans, including asset sales, one of the people said. HNA, which is based in Hainan, told creditors at the meeting it expects the pressure to ease in the second quarter as the group steps up disposals, according to two of the people.
It’s the first time that such details of the group’s financial squeeze have emerged, illustrating the extent and urgency of the liquidity challenges that HNA is facing. The company, contending with mounting borrowing costs for months, is seeking to sell assets after spending tens of billions of dollars on debt-fueled investments that transformed a little-known regional airline into one of China’s biggest business behemoths.
HNA representatives didn’t respond to a request for comment for this story but the company has repeatedly said in recent months that it’s in good financial condition and that its debts are manageable. In December, board director Zhao Quan said that any tightness in funds would be temporary and that the group wouldn’t default on any borrowings in the coming year.
HNA had 637.5 billion yuan in short- and long-term debt as of November, expanding more than 36 percent from the end of 2016, according to a company statement. When including the listed and unlisted companies it controls, the conglomerate has debts totaling about 1 trillion yuan, with China Development Bank being the group’s biggest creditor, according to the people. CDB didn’t immediately respond to a request for comment.
The Hainan provincial government, which called the meeting, expressed its support for HNA, the people said. Calls to the Finance Affairs Office of the Hainan provincial government went unanswered.
HNA creditors have yet to decide whether to form a creditor committee, the people said. Forming a committee is a popular strategy that creditors in China use when dealing with a borrower facing substantial difficulties. Such an arrangement may give creditors more influence in the group’s strategic decisions, including asset sales.
HNA’s creditors include China Development Bank, Export-Import Bank of China, Bank of China Ltd., Agricultural Bank of China Ltd., Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of Communications Co. and Shanghai Pudong Development Bank Co. HNA met with those eight banks in Hainan last month to discuss ways of providing credit support in 2018.
