Avolon bond yields rise as Chinese parent’s woes continue

The market interest rates on Domhnal Slattery-led aircraft leasing company Avolon rose on Tuesday as investors continued to fret about the finances of its ultimate Chinese parent, HNA Group.

Tianjin Airlines, a fellow part of the HNA Group, moved on Tuesday to scrap a planned issuance of 1 billion yuan (€131 million) of short term debt – the third such cancellation by a unit of the Chinese conglomerated this month.

HNA's Hainan Airlines and Bohai Capital Holding, the immediate parent of Avolon, abandoned bond offerings earlier in December.

Concerns about the financial strength of HNA have been growing in recent months as a result of the Chinese group's $40 billion (€33.8 billion) acquisitions binge since the start of last year, including the purchase of almost 10 per cent of Deutsche Bank and 26 per cent of Hilton Worldwide Holdings.

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Fitch Ratings, one of the world's main debt ratings agencies, expressed concerns earlier this month about Avolon's ties to its parent, after the Dublin-based business gave its immediate parent a $365 million short-term loan in the third quarter. Bohai acquired Avolon two years' ago in a $7.6 billion deal.

The market interest rate, or yield, on Avolon’s $950 million of bonds due in 2023 jumped from 4.37 per cent in early November to 5.51 per cent earlier this month as concerns about the company’s links to HNA went into overdrive.

However, the yields subsequently fell back after Avolon’s chief financial officer said on December 9th said the company was unlikely to make further loans to parent.

Still, the yield on the bonds rose to 5.21 per cent on Tuesday from 5.14 per cent as investors digested the abandoned Tianjan bond sale. A spokesman for Avolon declined to comment.

Market sentiment is likely to be cushioned somewhat by a report in the Wall Street Journal on Tuesday that HNA has identified $6 billon of properties for sale as it aims to generate cash to lower its debt pile.