There were more troubles for HNA Group as the Shanghai Stock Exchange temporarily halted trading on the company’s seven-year US$425 million note when the bond tumbled to less than 30 percent of its value, according to the Financial Times.
The Rmb3 billion bond, which is due in 2022, dropped some 25.8 percent amid fears of a default, according to Bloomberg. HNA Group owns Ingram Micro, the largest IT distributor in the US.
That move came the day after HNA Group’s teleconference with investors on a separate Chinese bond backfired, prompting the company to issue an apology for giving note holders just 90 minutes to weigh in on its plan to delay repayment as it seeks to restructure its mountains of debt.
After the dust-up with note holders, that bond, issued in 2013 and valued at US$55 million with a 7.1 percent return due this week, was awarded a one year extension by investors, according to Bloomberg.
“It is a very flawed process, and it will make credit investors hurt a lot,” said Qi Junwen, a fund manager at Yongan Guofu Asset Management Co., according to Bloomberg. He added that such a move will deal a blow to investors’ confidence, which may prompt them to shun weaker debt issuers and cause such borrowers increased refinancing difficulties.
HNA, which according to reports, flirted with selling Ingram Micro last year, is primarily an air carrier, having grown into other markets via acquisition and accumulating debt. The company has been hard hit by global travel restrictions around the coronavirus pandemic. A call to HNA Group’s media relations team in New York was not immediately returned.
Meanwhile, a work-group of Chinese government overseers are managing a restructuring of HNA, according to reports. However, Ingram Micro CEO Alain Monie has previously reassured partners and customers that U.S. laws “ring-fence” the IT company from HNA’s troubles as well as any Chinese government involvement in the operations of the U.S. business.
HNA’s ownership of Ingram Micro is governed by the U.S. Department of Treasury’s Committee on Foreign Investments to the U.S. or CFIUS. Treasury would need to review any transactions involving foreign investment in the company. Changes to the laws in 2018, and in 2020, gave the president more authority to step in under CFIUS if there was a threat to national security.
“Any change to Ingram Micro's ownership to a foreign entity would require approval by the U.S. Government,” Monie wrote in a February letter to partners. “We believe it is extremely unlikely the U.S. government would approve the transfer of ownership of Ingram Micro to a Chinese government entity. Additionally, as we have for the past three years, we continue to operate in close cooperation with U.S. Government agencies designated to ensure that HNA's ownership of Ingram Micro poses no threat to U.S. national security interests.”
In that same letter, Monie said the documented financial troubles of HNA also have no bearing on Ingram Micro, which has performed well while under HNA’s ownership.
“We've faced rumors and noise around HNA's financial difficulties for a few years and this will likely continue, especially in the recent weeks as the coronavirus outbreak has impacted significantly one of the major businesses of HNA: their airline business,” Monie wrote. “But on our side, we have executed incredibly well in the face of this noise, delivering a second straight year of strong financial performance, including strengthening our balance sheet.”