Whisper it quietly, but there's some good news on the way for shareholders in one of HNA Group's Hong Kong subsidiaries.
HNA, a regional airline-turned-global conglomerate, has become a watchword for all that is wrong in corporate China, building up huge leverage amid a $50 billion international acquisition spree since 2015.
It has been divesting many of the assets it bought, including three of four developments sites at Hong Kong's former Kai Tak airport, for which it paid record prices. Now, HNA is giving something back to shareholders of the subsidiary that owned the development sites.
In a statement to the Hong Kong Exchange on Tuesday, Hong Kong International Construction Investment Management (HKICIM), which still owns the remaining Kai Tak site, said its controlling shareholder planned to buy back 10.9 million shares of the Hong Kong listed company for the next three months, essentially boosting HNA Group’s holding from 74.678% to 74.998%.
To be sure, the sums are modest. Shares in HKICIM were trading near all-time lows at HK$1.45 per share on Tuesday, giving up more than 65% from the 52-week high of HK$4.16. At the current level, the share buyback would cost the parent just HK$15 million ($1.94 million) in total. Share purchases can play a key role in supporting a share price because it reduces the number of outstanding shares.
Bankers say buybacks show management is bullish about a company’s prospects and believe the shares are undervalued. “Certainly, companies see buybacks as a more efficient way to reward their shareholders when other options such as acquisition are less attractive,” an M&A banker with a US investment bank told FinanceAsia on condition of anonymity.
The share buyback comes after the closely-held group’s number two executive, Jian Wang, suddenly passed away in an accident last month during a business trip to France. The 57-year-old HNA chairman fell to his death while visiting the picturesque village of Bonnieux in southern France, deepending the turmoil surrounding the company.
The announcement to the stock exchange did, however, make clear that there was no guarantee the share purchase would go ahead.
Historically speaking, there are signs the worst might just be over for HNA Group, as the conglomerate has shed more than $17 billion of assets globally this year. Extending its efforts to trim debt and raise cash, HNA is mulling the sale of a stake in aircraft leasing company Avolon, which could fetch $2 billion from the divestment, according to a person familiar with HNA Group’s thinking.
HNA Group is also looking to raise fresh capital by seling a stake in US hotel chain Radisson, two people told FinanceAsia in June.
“More asset sales are expected so it is too early to say HNA is out of the woods, but the worst should be over,” a fixed-income fund manager in Hong Kong told FinanceAsia, citing a solid recovery in the group’s dollar bonds.
In the secondary market, HNA Group’s 7% January 2020 US dollar bond has bounced back recently. The bond was quoted at 92 cents on the dollar on Tuesday, up from 88 cents on the dollar in early June. The bond tumbled to 84 cents in December last year when news of the group’s liquidity problems emerged.