HNA Group's credit assessment rating lowered by S&P on tightening liquidity

HONG KONG (Reuters) - Indebted Chinese airline to property conglomerate HNA Group [HNAIRC.UL] has had the assessment of its creditworthiness by S&P Global Ratings downgraded as a result of its “aggressive financial policy” and tightening liquidity amid looming debt maturities.

FILE PHOTO: The HNA Group logo is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

The agency on Wednesday downgraded HNA’s overall creditworthiness by a notch to ‘|Bb’, deeper into sub-investment grade territory, from ‘b+’.

The cut comes against the backdrop of a slew of repayment obligations and concerns about rising financing costs at the indebted airline-to-property conglomerate.

HNA Group’s $50 billion buying spree in the past two years has primarily been funded by debt, with acquisitions including a near 10 percent stake in Deutsche Bank as well as big stakes in international hoteliers Hilton Worldwide Holdings and NH Hotel Group .

However, in recent months HNA has struck a series of short-term funding deals at higher costs, raising concerns that some of its units are experiencing a liquidity crunch.

“We base the revision on our view of HNA Group’s aggressive financial policy and risks over tightening liquidity,” the S&P report said, while announcing the lowering of its credit assessment of the group.

The ‘b’ rating corresponds to “adverse business, financial, or economic conditions (that) will likely impair the obligor’s capacity or willingness to meet its financial commitments on the obligation.”

HNA has “significant” debt maturities over the next several years and its funding costs are “meaningfully higher” than from a year ago, the rating agency said in the statement.

The conglomerate did not immediately respond to Reuters request for comment.

HNA is making adjustments to its acquisitions strategy to conform with Chinese national policies and has sold some investments and real estate projects to improve its liquidity, domestic media reported its chief executive, Adam Tan, as saying on Tuesday.

Figures given by HNA Group International Company Limited (HNAI), which acts as the group’s offshore investment and foreign capital management platform, in its most recent bond deal filing show its liquidity ratio narrowing.

Finance costs rose 50 percent in the first nine months of 2017 from a year ago, as per the document, which showed it has paid HK$1.32 billion ($169 million) so far this year. Its cash balances fell sharply to HK$1.16 billion from HK$8.57 billion.

This month, HNAI accepted a coupon of 8.875 percent on a $300 million one-year bond.

That bond is already trading below the issue price and its bid price of 98.083 cents on the dollar indicated a yield of 11.09 percent on Wednesday.

“We will closely monitor HNA group’s access to capital markets and funding costs to determine whether additional actions are necessary,” S&P said.

Reporting by Umesh Desai and Matt MillerEditing by Greg Mahlich