Some possibly interesting numbers

Some background. A few years ago, the China firm HNA bought Avolon Aircraft Leasing (through Bohai) for $2.5 billion, then Avolon bought CIT for $10.4 billion, so that’s $12.9 billion, and then HNA sells 30% of Avolon for only $2.2 billion. That translates into a value for all of Avolon of $7.3 billion. So HNA’s remaining stake in Avolon is only worth $5.1 billion, versus the $12.9 billion purchase price – a loss of $5.1 billion in value (after subtracting the proceeds from selling part of Avolon).

HNA now has $80 billion in debt, $25B of which has to be paid back or renegotiated in the next 12-24 months. Last year at this time it had $98 billion in debt, so it has already sold many of its more attractive assets, including Hilton, Radisson and Deutsche Bank shares, and some prime real estate worldwide.

HNA’s book leverage is over 90%, and book value seems uncertain, based on the above. And if you look at Avolon’s bond ratings they’re Baa or BBB-, so Avolon itself is not a spectacular credit. On the plus side recently, HNA has been able to sell HK Express to Cathay Pacific for $4.9 billion, which Forbes calls a loss of the “shinier” part of its portfolio. Article linked below.

By contrast to HK Express, HK Airlines, 29% owned by HNA, needs $250MM or so or it will lose its operating license. There has been major management turnover at the airline, PwC just resigned as auditor, a huge negative, and the press is reporting that Japanese authorities have found that parts are falling off some of its planes. The Business Times of Singapore reported last month that a number of China bond issuers, including HNA, are doing secret deals with bondholders in order not to pay full amounts due on a timely basis. Hmmmm.

Of course CDB, which is advising HNA on divestitures, or some other China entity, will have to bail out HNA and related entities, but it won’t be cheap. $5B? $10B? $20B? More? Here’s the Forbes link, and another one as well.

Why write this? Well, we’re very interested in China, aviation, and finance, and there’s a lot going on in the real world as opposed to the idiocy of climate apocalypse, etc.

3 Responses to “Some possibly interesting numbers”

  1. Bob Risko Says:

    From the Forbes article: “HNA didn’t respond to requests for comment on the magazine interview or what the group has been doing to reduce its debt level.” I’ll bet!

  2. feeblemind Says:

    FWIW:

    China’s Urban Crisis
    Authoritarian planning, rising class tensions, and sophisticated population surveillance cast a shadow on the country’s rapidly growing cities.

    https://www.city-journal.org/chinas-urban-crisis

  3. feeblemind Says:

    China and US capital markets: For once, ‘leveling the playing field’ is not a protectionist cover

    From the article:

    A bipartisan group of Senators and Representatives have introduced legislation that would force foreign companies to delist from American stock exchanges unless they come into compliance with US accounting practices within three years.The effort has been spearheaded by Sen. Marco Rubio (R-FL). Under the terms of the proposed legislation, upon passage all foreign firms which have not allowed US regulators to view their audits will be immediately subject to increased disclosure requirements by the Public Company Accounting Oversight Board (PCAOB) and, as noted, removed from US listings unless they fulfill the transparency obligations traditionally required of all foreign corporations.

    While the legislation covers all foreign companies, China and Chinese companies are the real targets. For years, China has thwarted US and other foreign accounting regulators by refusing to allow disclosure of domestic audits, claiming national security (“state secret”) considerations. This lack of transparency has finally resulted in a public warning to investors by the PCAOB and the US Securities and Exchange Commission, stating that it was false to assume that for a listing by a Chinese company on a US exchange, regular “US rules and regulatory oversight apply.” For Chinese companies, they do not.

    . . . Though it will be difficult to rein in politically popular anti-China charges related to human rights, national security, and decoupling, congressional proponents of the legislation to force transparency in foreign firm audits should focus sharply on the risks to US investors, businesses, and overall capital market fiduciary responsibilities. On those grounds, they have solid case.

    http://www.aei.org/publication/china-and-us-capital-markets-for-once-leveling-the-playing-field-is-not-a-protectionist-cover/

Leave a Reply