SGD New Issue Review : HNA Group (International) 2Y 7%

HNA Group (International) SGD 2 YR

– HNA Group (International) SGD 2yr announced on the back of strong IOIs from SG Roadshow
– Initial price guidance: 7% area
– Size: TBD
– Timing: As early as today’s business

COMPS
Grand China Air HK 6% 11/06/17  99.25, 6.32%

 

Smelly indeed because the natural comparable would be the HNA CNH bond which has somehow collapsed in price since its issue in Nov last year.

Bond details : HNA Group International 8% CNH 1.25 bio maturity 11/2017 currently trading at 10.75/10.25% which works out to be roughly SGD 7.25-7.75%.

This is complicated indeed because HNA Group (International) is not Hainan Airlines which is doing pretty well and Grand China Air holds a major stake in Hainan Airlines. https://tradehaven.net/market/sgd-new-issue-review-grand-china-air-guaranteed-by-hainan-airlines/

What I wrote about Grand China Air last year – Grand China Air is managed under a parent company called Grand China Airlines Holding Company (GCAHC) which is held jointly by Hainan province government (48.6%), George Soros (18.6%), and the HNA group (32.8%).  http://en.wikipedia.org/wiki/Grand_China_Air

The issuer, HNA Group (International) is guaranteed by the holding company, HNA Group, both of which are private companies in China. The company was established in 2010 as the offshore investment, foreign capital management platform for HNA Group.

I suppose the CNH bonds tanked partly because the Kaisa case has demonstrated the difference in standing for onshore and offshore creditors ?

HNA Group International has their fingers in many pies, including European trailer leasing, HK aircraft leasing and golf club management.

I note an overlap in the bond depiction by the banks, most of them selling from the guarantor perspective i.e. HNA Group instead of the issuer, HNA Group International.

In any case, there are certain selling points for this bond from an offshore investor perspective.

1. SGD is trading at a 5 year low vs CNH
2. 2Y SGD interest rates are ard their 5 year highs
3. The credit spread has priced in the widening of the CNH paper (7% – 1.58% = 5.42% credit premium

There are several covenants to note.

1. Financial Covenant a) Consolidated Total Debt to Total Assets 0.8 to 1 b) Consolidated Equity at end of any period to be less than RMB 24 bio

2. Change of control put (for relevant interests in the guarantor)

The downside is that both are afterall private companies and private companies in China are a bit hard to go after ? Not that they are in any major risk at the moment being affiliated to the government of Hainan.

Having said that, I do like Grand China Air and thus, HNA Group International, though unrelated, should be a decent enough investment compared to the other crazy tight credits in SGD space. Hearing issue size of SGD 150-200 mio which means they should deliver 7% and a tighter coupon would be unfriendly indeed.

Good luck !