Thursday 19 July 2018

Avolon owner HNA plans $16bn of asset sales as investors fret

Avolon, co-founded by Domhnal Slattery, is controlled by HNA
Avolon, co-founded by Domhnal Slattery, is controlled by HNA
John Mulligan

John Mulligan

HNA, the Chinese conglomerate that controls Dublin-based aircraft lessor Avolon, is reportedly eyeing $16bn (€12.8bn) in asset sales during the first half of 2018 in order to prevent a liquidity squeeze.

The group has spent billions of dollars in recent years buying stakes in businesses such as the Hilton hotel group and Deutsche Bank.

There's no indication yet as to what assets HNA might offload, according to news agency Bloomberg.

Its stock market-listed Bohai Leasing subsidiary completed the acquisition of Avolon in 2016, in a deal that placed a $7.6bn (€6bn) enterprise value on the lessor.

Avolon - the world's third biggest aircraft lessor - was co-founded by Clare native Domhnal Slattery in 2010 and had floated on the New York Stock Exchange just months before Bohai offered to buy it.

HNA owns 52pc of Bohai Leasing. Last year, Avolon completed the $10.3bn acquisition of the leasing assets of CIT.

Last week, a senior JP Morgan executive claimed that Avolon's bond rates were "not competitive" and "unsustainable" because of HNA's issues.

"They [Avolon] need competitive bond market access and at the moment their rates are not competitive given the problems with HNA," said JP Morgan managing director Mark Streeter, speaking at the Global Airfinance Conference in Dublin.

But the following day, Mr Slattery moved to dismiss concerns.

"There's been a lot of noise in the past day or two about Avolon's bonds," he said. He pointed out that the price of Avolon's benchmark bond, which matures in 2022, has tightened 13pc in the previous five trading days, and that the yield on the bond has tightened by 22pc.

"That tells me, as chief executive of the business, that the bond market can be quite volatile and reactive to headline news," he said, adding that Avolon has access to "multiple" debt markets.

He also said that Bohai Leasing is legally prohibited from providing any shareholders loans, "or any loans" to HNA.

As of last June, HNA had amassed $190bn (€152.3bn) of assets. The group also held almost $30bn (€24bn) of shareholdings, according to data compiled by Bloomberg. Real Capital Analytics estimates HNA owns more than $14bn in global real estate.

HNA had 185.2bn yuan (€23.6bn) of short-term debt, more than its cash and earnings can cover, at the end of last June. Borrowing costs for the conglomerate have risen since then amid investor concerns. (Additional reporting: Bloomberg)

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