Trading in a bond issued by China’s HNA Group was suspended in a sign of how liquidity problems at the heavily indebted conglomerate have worsened after the coronavirus pandemic buffeted capital markets.
The Shanghai stock exchange said in a statement on Wednesday that trading in the seven-year, Rmb3bn ($425m) bond — issued by the company in 2015 — was initially halted shortly after the market opened due to “abnormal fluctuations”. After a brief resumption, trading was again stopped after the bond fell below 30 per cent of its par value.
The volatility came after HNA called a last-minute teleconference on Tuesday night to tell its investors of its intention to delay by a year both principle and interest payments for a separate bond issued in 2013 that had been due on April 15. On Wednesday, HNA publicly apologised for failing to give advanced warning of the meeting.
HNA, based in southern China’s Hainan province, is best known for its high profile debt spree in 2015 and 2016 in which it spent billions of dollars on assets including stakes in Deutsche Bank and Hilton Worldwide. It also controls Hainan Airlines, China’s fourth-largest carrier.
HNA’s fortunes soured after Beijing began blocking big outbound investments four years ago on concerns over capital outflows and the substantial debts being accrued by it and other so-called “grey rhino” conglomerates. Insurer Anbang was placed under government control in 2018 and its chairman Wu Xiaohui was sentenced to 18 years in prison for fraud.
The director of one Shanghai-based brokerage said investors may also have been using HNA’s bonds to speculate on the fate of Hainan Airlines. Like elsewhere in the world, the coronavirus has piled enormous pressure on China’s airline industry. The country’s aviation regulator said on Wednesday that carriers had suffered a record loss of Rmb33.62bn in the first quarter of the year after the pandemic cut demand for flights.
The coronavirus has whipsawed capital markets in China and elsewhere over the past two months. Data on Friday is expected to show a historic contraction in Chinese economic growth.
“There’s always some hot money that’s going in and out of these bonds,” the brokerage director said. HNA would likely receive a government bailout to prevent its collapse, as Beijing doesn’t want “to see a high-profile issue in this environment”.
In February, two senior Chinese state executives were appointed to management roles at HNA, prompting speculation that the company could be taken over by the Chinese government.