Parent firm of Avolon down €1bn this week
Bohai Capital, the company behind aircraft lessor Avolon, had more than €1bn wiped off its stock market value in Chinese trading this week as shares resumed trading after a long suspension.
The shares were down around a quarter in the week, while other units of debt-laden Chinese conglomerate HNA Group were also hit hard after lifting a months-long halt of shares.
Flagship Hainan Airlines dropped by the 10pc daily limit to its lowest close in more than three years, and CCOOP Group also fell by 10pc to a four-year low yesterday in Shanghai and Shenzhen.
The units of one of China's most indebted business groups had cited major restructurings for the suspensions, though analysts pointed out there may be other motives given that Chinese companies have a history of using trading halts to prevent their stocks from falling further.
The resumption came as Hainan Airlines plans to raise as much as 7 billion yuan (€882m) by selling shares to investors, including an arm of Singaporean state-investment company Temasek Holdings, as part of a restructuring.
Fortunately for HNA, which pledged shares in all of its suspended units as collateral for borrowings, the risk of margin calls isn't high even if the stocks continue to fall.
A margin call would mean the company had to provide additional security or pay back its loans.
China's government recently restricted forced liquidations of pledged shares, according to people familiar with the matter.
The government restrictions "will help fend off immediate margin calls on loans", said Zhang Gang, a strategist at Central China Securities Co.
"But HNA's problems are complex. They're more than just margin calls."
HNA has sold more than $17bn in assets to pay debt this year after a buying spree that resulted in the group becoming the largest shareholder of Deutsche Bank and Hilton Worldwide Holdings.
Despite its success in selling out of Hilton and disposing of various real estate properties globally, borrowing costs for HNA are still high.
For example, Bohai Capital last month agreed to pay pc interest - a record for the company - for a bond, according to Bloomberg data.
HNA said the group will work closely with the publicly traded firms as part of HNA's overall strategy to streamline its asset portfolio and improve overall financial performance.
Earlier this year Avolon, which grew after-tax profit 59pc to $550m last year, moved to insulate its bondholders against propping up Bohai.
It added new covenants to existing senior unsecured bonds limiting loans it can make to Bohai Capital (Bloomberg)