CWT International and its subsidiary’s default on over $270 million of debt throws into doubt the Hong Kong-listed firm’s ability to survive. These defaults add to a litany of debt woes for parent company, HNA Group.
On Tuesday, CWT International announced that it failed to pay interest and fees for a HK$1.4 billion ($179 million) loan. This default has triggered a cross default of a HK$766 million loan extended by an unnamed lender to CWT International’s wholly owned logistics, commodity marketing, engineering and financial services subsidiary CWT.
The lenders have issued demands for the repayment of the HK$1.4 billion loan plus interest, CWT International said. The lenders stated that, if the outstanding amounts are not repaid by 9 AM Wednesday, they will take possession of all charged assets without further notice. The assets include CWT, investment properties in the UK and US, as well as golf courses in China. All these assets constitute “the vast majority” of the CWT International’s total assets which amounted to HK$24.6 billion as of the end of 2018.
The company warned that if the creditors take over CWT, this may trigger yet more cross-defaults of CWT’s other loans.
CWT’s cross default throws into question the subsidiary’s two outstanding Singapore dollar bonds totaling S$200 million ($148 million). The mid-yield to maturity of CWT’s S$100 million bond due on April 18 spiked from 198.7 on March 28 to 1,652.9 on April 12 then fell to 3.83 on April 16. CWT’s other S$100 million bond matures on March 18 next year.
In its annual results released at the end of March, auditor KPMG warned that CWT International’s ability to repay its HK$1.4 billion loan “may cast significant doubt on the group’s ability to continue as a going concern”.
CWT International booked a loss of HK$557.3 million last year compared to a net profit of HK$204.5 million in 2017.
The turnaround from profit to loss was largely attributable to revaluation losses on investment properties resulting from unfavourable market conditions, rental expenses and financing expenses. The loss was also due to depreciation and amortisation charges from the Hong Kong-listed firm’s $1 billion acquisition in 2017 of CWT from the Port of Singapore Authority (PSA).
“The financing for the CWT deal always seemed shaky with Maybank and RHB Bank allegedly having had concerns over the loan package, which took some time to negotiate,” said Jason Wright, the founding managing director of Hong Kong risk consultancy Argo Associates.
In 2017, the acquisition of CWT was listed as one of the top 10 mergers and acquisitions (M&A) under the Belt and Road Initiative by Chinese overseas M&A data provider Morning Whistle. The Belt and Road is China’s project to connect with other countries through infrastructure projects like ports and roads.
HNA has been trying to sell the company as it attempts to decrease its debt. The private Chinese conglomerate splurged an estimated $40 billion buying assets around the world from 2015 to 2017.
In late November, HNA was desperately selling overseas assets to pay down its huge debt which had reached Rmb657.4 billion ($94.7 billion) in the middle of last year.
Exacerbating the credit problems of HNA and CWT International are disagreements within their leadership. CWT International replaced Xu Haohao with Li Tongshuang as chief executive towards the end of February, only a few months after Xu had been appointed chief executive in November. Xu expressed disagreement with this move and abstained from voting on this motion at a board meeting.
As for HNA, there were tensions between its late former co-chairman Jian Wang and its current chairman Feng Chen, one source told FinanceAsia.
At the Boao Forum in Hainan Island in China, HNA’s home base, in late March, Chen said: “Liquidity problems arose in our company due to blind expansion, misjudgement of overseas markets and inadequate preparation. The company underwent a life-and-death experience last year.”
Chen took over as HNA chairman on July 5 after Wang's sudden dealth in in France.
HNA is slowly emerging from its difficulties, but still lacks the funds to resolve its problems and must step up efforts to dispose of assets, Chen said. HNA will focus on aviation as its core business, and resolves to sell non-core assets, he added.
Other companies linked to HNA are also in debt distress, like Hong Kong Airlines where HNA owns a minority stake. In mid March, the Hong Kong Air Transport Licensing Authority (ATLA) asked Hong Kong Airlines for plans to improve its financial situation. There were claims in a Hong Kong court for recovery of debt arrears from Hong Kong Airlines, ATLA said.
Representatives of HNA, CWT International, Maybank and RHB all either did not respond to questions or declined to comment.