The notoriously acquisitive Chinese conglomerate HNA – which recently had a sharp falling out with Beijing resulting in a margin call “shocksave” – is facing a serious cash crunch in 2018 as nearly a quarter of its $100 billion in debt – a large chunk of which was accumulated during a multi-year buying spree that saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and a large portfolio of international holdings – comes due.
But even as the company resorted to loaning out shares and entering into arcane derivative financing agreements to finance its debt-service payments, it is quickly finding that traditional avenues of financing are disappearing or becoming too costly.
Despite being one of China’s largest conglomerates, HNA has been shut out of stock and bond markets as lenders worry about its outsized debt load, forcing the company to pledge some of its core holdings as collateral for short-term loans, as the Wall Street Journal reported earlier this month.
This has forced the conglomerate to explore other options. To wit, the bank recently pledged some of its Deutsche Bank shares to UBS as collateral for a loan worth roughly $117. It also executed an options strategy known as a collar. This strategy involves purchasing out-of-the-money puts to protect against a large drop in the stock while simultaneously selling out-of-the money calls to offset the cost of the puts.
On Dec. 20, HNA’s unit entered into a new series of collar transactions with Swiss bank UBS Group AG, and pledged its Deutsche Bank shares to UBS in exchange for a total of 2.36 billion euros (US$2.8 billion) in net financing. It also has a margin loan from UBS and ICBC Standard Chartered PLC. In all, the new total amount of financing was about 99 million euros (US$117.6 million) higher than what was disclosed in a similar filing in May.
This post was published at Zero Hedge on Dec 27, 2017.