October 25, 2018 / 2:02 AM / 10 months ago

UPDATE 3-HNA affiliate Hainan Airlines raises $100 mln bond, pays 12 pct

* New bond carries 12 pct coupon

* Rate is almost twice a 6.35 pct 2017 deal

* Only 3 similar tenor bonds this yr in Asia have paid more (Adds company comment)

By Jennifer Hughes

HONG KONG, Oct 24 (Reuters) - HNA-affiliated Hainan Airlines - China’s fourth-largest carrier - has sold $100 million in two-year U.S. dollar bonds carrying a 12 percent coupon, in a sign of the financing strains felt by units of the indebted Chinese conglomerate.

The deal comes as HNA Group is in the process of selling some $20 billion of assets, according to Reuters calculations and media reports, following a $50 billion acquisition spree.

The conglomerate, whose holdings at its peak ranged from hotels to the largest single stake in Germany’s Deutsche Bank , is seeking to focus more closely on its core businesses including airlines.

Hainan Airlines said the bond issuance was part of its normal commercial activity. HNA Group did not respond to a request for comment.

According to a termsheet seen by Reuters, Hainan Airlines raised $100 million from the deal, which launched on Wednesday with no target size given.

The unrated notes were sold to raise funds for “repayment of certain indebtedness and general corporate purposes,” the termsheet said.

Hainan Airlines has $300 million of dollar-denominated bonds due for repayment on Oct. 31, according to Refinitiv data. Those bonds, issued on Nov. 1 last year, carried a coupon of 6.35 percent.

Only three dollar-denominated bonds with a similar two-year tenor sold in Asia-Pacific this year have carried a higher coupon than the new Hainan Airlines deal, according to Refinitiv.

The new bonds were priced at a slight discount, meaning they will yield 13.17 percent to maturity.

Unusually, the deal included a “non-put” structure for the first year, meaning after that time, investors can make Hainan Airlines repay the debt early.

Typically, fixed-income investors, who profit from coupon payments, instead look to protect that income stream with an opposite structure, known as “non-call”, which prevents the borrower from repaying the bonds for a set number of years.

“It’s a very investor-unfriendly structure,” a debt syndicate banker not involved in the transaction said, adding that a non-put clause was “extremely rare”.

The deal, which was led by Guotai Junan International, comes as HNA is undergoing an extensive restructuring.

In May, Hainan Airlines said control of the company had passed to a local provincial regulator.

In June, it outlined plans to acquire aviation assets worth $1.6 billion, to be funded by a share issue to investors including Singapore state investor Temasek Holdings, after which control of Hainan Airlines would pass to HNA-affiliated Hainan Province Cihang Foundation. (Reporting by Jennifer Hughes; Additional reporting by Stella Qiu; Editing by Neil Fullick and Stephen Coates)

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