HNA plans China’s first Islamic finance deal

HNA Group, owner of Hainan Airlines, is planning the first Islamic financing deal by a mainland Chinese company, highlighting a growing push by China’s private firms to find funding overseas as domestic loans remain scarce and costly.

The shipping and airlines conglomerate plans to raise up to $150 million in Islamic loans in October to buy ships, said Andrew Kinal, managing director of Geneva-based Shariah Advisory Group (SAG), which is advising on the deals.

HNA’s financing arm will then issue “a very large offshore sukuk”, or Islamic bonds, of benchmark size before year-end, said Kinal, which typically means of at least $500 million.

“A mix of global and Gulf-based banks are working on this transaction,” he said.

Though it will be the first sharia-compliant financing used by a mainland Chinese company, Kinal does not expect it to be the last.

“This first Chinese Islamic transaction is just the beginning for Islamic finance into China,” he said.

Islamic finance boom

Islamic finance has boomed on the back of strong economic growth in its core markets of the Gulf and Southeast Asia, but such pools of capital remain mostly untapped by Chinese firms.

As China’s economy heads for its weakest growth in a quarter century, the central bank has cut lending rates and trimmed reserve requirements to spur economic growth, but this has not translated into cheap financing for private firms.

“State-owned enterprises enjoy privileged access to the loan market, so their cost of financing is lower, but for private companies this is different,” said Hong Kong-based Ben Ping Chung Cheung, SAG’s Asia-Pacific head.

“The availability of credit is lower for them, so this is feeding interest into offshore funding sources.”
Islamic finance is a growth area for global financial centers including Britain, Hong Kong and Luxembourg, which have all issued debut sukuk over the past year.

Hong Kong tapped the market for a second time in May, a $1 billion deal, as part of efforts to attract mainland firms to issue sukuk of their own.

HNA Group, which posted revenue of 170 billion yuan ($27 billion) in 2014, has been on a spending spree this year, agreeing to buy stakes in air cargo handler Swissport International Ltd and Irish-based aircraft leasing firm Avolon Holdings Ltd.