Every few days at the moment, it seems, we return to the subject of systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda.

Our main source of concern recently has been HNA, after it issued a bond with less than one year to maturity with the extortionately high coupon of 9%. This prompted us to ask whether China was experiencing the beginning of its Minsky moment? The reason for our continuing focus on HNA is its $28bn of short-term debt which matures before the end of next June, much of it accumulated during a binge of acquisition-driven growth which saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and others.

Last week, as we discussed, S&P downgraded HNA’s credit rating by one notch from b+ to b, five levels below investment grade. in another sign that HNA is under pressure from the Chinese government and its creditors, CEO Adam Tan announced that it was ditching its acquisitive strategy, while considering the IPO of Gategroup, a company it only acquired last year for $1.5 billion.

We also noted how HNA businesses, even ones with supposedly good credit ratings, were stepping up fundraising moves in the domestic bond market at high coupon rates. For example, Hainan Airlines, the company’s core business, issued bonds at junk rates despite having “top ratings from local credit assessors”.

Although cancellations of bond offerings in China had reached their highest level since April, due to the rout in the domestic market, we remarked how HNA didn’t appear to have that “luxury”. While it may not have the luxury, it’s been forced into cancellations. On Wednesday, Hainan Airlines scrapped a 1 billion yuan ($151.2 million) of perpetual bonds to repay a maturing debt. This from Bloomberg.

“Our company decided to cancel this bond sale due to the market environment, as we’re getting toward the end of the year,” the Hainan Airlines unit said in a reply to questions from Bloomberg News on Wednesday. “Hainan Airlines has a sound business operation.”

As Bloomberg noted “One of Hainan Air’s bonds fell the most on record on Wednesday after Bloomberg reported on the canceled sale”. The same day, Fitch raised concerns about $365 million of loans which HNA’s aircraft leasing company, Avolon, provided to another HNA business in the third quarter. This brought into question the Avolon’s independence according to Fitch. The ratings agency also cited its concern regarding reports of HNA businesses delaying lease payments for aircraft.

On Tuesday, S&P cut its long-term credit rating on another HNA unit, Swissport Group Sarl to B-, a massive six levels below investment grade. The reason for the downgrade…concerns about its Chinese parent.Also on Tuesday, HNA Investment Group, a unit specialising in real estate and hotel management, scrapped a planned 5.22 billion yuan ($790 million) after failing to get regulatory approval.

A sign that a company’s financial position is becoming critical is when company executives make public pronouncements that all is fine without providing the financial data to back up their assertions. HNA has moved into this stage with both the Financial Times and Bloomberg reporting on interviews they’ve had with an HNA director. The FT first.

HNA Holdings Group has dismissed concerns about the group’s liquidity but admitted to end-of- the-year tightness, as Chinese banks eke out the remainder of their lending quotas…In recent weeks HNA has extended the payment period for a loan from its Swiss entity, Gategroup, to another affiliate and has delayed payments to aircraft lessors, raising concerns about the group’s liquidity.

“The US is raising interest rates and the Chinese government is tightening and deleveraging. The general environment is affecting liquidity,” said Zhao Quan, the group’s newly appointed board director, in an interview at HNA’s Buddha-shaped headquarters in China’s semi-tropical island of Hainan. “In December interest rates are relatively high, and not only for HNA.

”Mr Zhao said the group had a “healthy” cash flow from its tourism and aviation businesses and “a lot of choices” in its financing. He said the company was not in a hurry to sell any assets, dismissing talk that many of its recent purchases could be on the block.

We hope Zhao will forgive us, but we remain sceptical as the plethora of high coupons and, in recent days, cancellations to bond issues and credit downgrades strike us as a bit more than “end-of-the-year tightness. Speaking to Bloomberg, Zhao sounded more adamant that a default is not in prospect.

The debt-laden Chinese conglomerate HNA Group Co., whose airline unit scrapped a bond fundraising plan this week after financing costs soared, said it won’t default on borrowings anytime soon. Board director Zhao Quan said in an interview Friday that there would be no default in the coming year, when asked about risks in that period, without commenting on the longer-term outlook. The company doesn’t see any default risk in coming years, it said in response to a follow-up question.

“Currently we have a healthy and stable debt structure,” Zhao said. “The high interest rates in December are for all companies, not just for HNA. HNA’s cash flow is stable currently."

If we’d been the journalist, we’d have pressed Zhao to justify his assertion of a “healthy and stable debt structure”. There are lots of lights flashing red on HNA. Talking of which, as we were preparing to publish, a the following Bloomberg headlines crossed our screens. 

HSBC IS SAID TO TELL BANKERS NOT TO PITCH NEW BUSINESS W/ HNA
HSBC CONCERNS ARE SAID TO CENTER ON HNA DEBT, REPUTATIONAL RISK

This follows a similar internal warning at Bank of America in July when investment bankers at the firm were instructed to stop work on transactions with HNA Group due to its "debt levels and ownership structure".