SWITZERLAND: Swissport has started providing short-term loans to companies linked to the HNA Group, raising concerns among investors about the intermingling of the Swiss airline services company’s funds with its Chinese parent. HNA acquired Swissport at the start of 2016, financing the deal with junk bonds and leverage loans, during the height of the Chinese conglomerate’s international buying spree. In a financial statement to its bondholders published this month, Swissport disclosed that it lent $100m to a “related party” on June 28 that was repaid nine days later. Then on August 29, the company’s board approved a new €400m, 90-day loan to a related party. People with knowledge of the matter said that the loans are to an affiliate of HNA in Hong Kong. Swissport declined to comment, and representatives of HNA did not respond to a request for comment.
Swissport has more than €1bn of leveraged loans and junk bonds outstanding. An investor with exposure to Swissport’s debt said he was concerned that HNA is using loans to cover short-term liquidity needs elsewhere. “Chinese investors have been given the benefit of the doubt because they don’t seem to over-leverage the companies they buy and they put a decent amount of equity in,” he said. “But when you pierce the surface, you have to recognise that a lot of that equity is debt-funded domestically. If funding from domestic banks is turned off, how does it all play out?” Concerns have grown over HNA’s access to Chinese bank financing after the country’s bank regulator ordered domestic lenders to check the “systemic risk” presented by “some large enterprises” involved in overseas buying sprees. The Chinese conglomerate has turned to more esoteric funding sources from the shadow banking world, such as wealth management products and peer-to-peer lending platforms. The opaque ownership and financing structure of HNA have also come under increased scrutiny from regulators outside China. Switzerland’s takeover body last week demanded that HNA clarify its ownership structure in relation to its acquisition of Gategroup, another Swiss airline services company. In the case of Swissport, tensions among debt investors are particularly high as HNA triggered a technical default at the Swiss company earlier this year. This was because the Chinese group used pledges over shares in Swissport to finance its acquisition of the company in 2016, which were used as collateral before the acquisition actually closed.
Swissport said it was not until more than a year later that it discovered that this had happened, leading it to inform lenders of a technical default in May. Swissport had to launch a debt exchange to fix this default, in which HNA injected €718m of fresh equity into the company. “If it was just a technical breach, why put in over €700m of equity?” said one bond investor, who does not own any Swissport debt. “The bondholders seemed to shrug it off, but now you have a €400m exposure to an entity you have zero visibility on. Something doesn’t feel right.”
