HNA unit’s lenders play hardball after default, may seize assets

A unit of HNA Group Co. defaulted on a loan it took out less than seven months ago, the latest in a string of missed payments that threaten to complicate the embattled Chinese conglomerate’s restructuring.

Lenders to CWT International Ltd., a Hong Kong-listed unit of HNA, said they would seize most of the company’s assets – including CWT’s stake in a logistics unit, properties in the U.S. and U.K., and golf courses in China – unless CWT makes good on payments tied to a HKD1.4 billion (USD179 million) loan taken out in September. CWT was given a deadline of 9 a.m. today, the company said in a statement to the Hong Kong stock exchange that didn’t identify the lenders.

The setback suggests HNA is still struggling to cope with its debt after embarking on more than $25 billion of asset sales since 2018, unwinding one of the biggest global acquisition binges in Chinese history. HNA units have rarely disclosed threats of imminent asset seizures despite having missed payments in the past. CWT’s statement could be a sign that creditors’ patience is wearing thin.

For lenders and bondholders navigating a rising number of defaults in China, the question is how much leeway to give HNA as the company tries to restructure. The group repaid a yuan-denominated note after a delay last month, one of several Chinese borrowers to miss payment deadlines only to come up with the cash shortly thereafter.

“HNA is far away from being sustainable,” said Warut Promboon, managing partner at credit research firm Bondcritic Ltd. “The asset sale helps, but we believe the governance of the whole structure is difficult. We also believe liquidity transfers between entities is not that easy, hence the sporadic defaults of the subsidiaries.”

HNA, a poster child for runaway Chinese corporate debt that became a major target of Beijing’s two-year campaign to curb financial risk, declined to comment beyond the exchange statement. The thinly traded 2019 dollar bonds of HNA Group International were little changed on Wednesday, yielding around 14 percent. CWT International shares were suspended in Hong Kong. They’ve tumbled 59 percent over the past year.

CWT International, which had almost HKD25 billion of assets at the end of 2018, has been negotiating with lenders, it said. The missed payment led to a cross default under a term-loan facility, which has about HKD766 million outstanding, CWT International said.

CWT Pte, a unit of CWT International, has a SGD100 million ($74 million) note due tomorrow and another bond of the same amount due March next year, according to Bloomberg-compiled data. An auditors’ report contained in CWT International’s 2018 annual results said there could be “material uncertainties” within the firm that “may cast significant doubt on the Group’s ability to continue as a going concern.”

“We hold the view that CWT Pte will pay its Singapore dollar bonds due on April 18 as CWT Pte holds assets and has on- going businesses,” said Ezien Hoo, a credit analyst at Oversea Chinese Banking Corp. “But its parent defaulting may complicate the process and there may be delays.” Dominic Lau & Denise Wee, Bloomberg