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Is there any valuation at which Temasek Holdings Pte could buy into Hainan Airlines Holding Co. at a decent price? Considering the indebtedness of China’s most highly rated carrier, it’s hard to think of one.
Hainan Air’s shares have been suspended for six months while controlling shareholder HNA Group Ltd. is in intensive care. But the 7 billion yuan ($1.1 billion) valuation for a 20 percent stake to a group including a Temasek-owned fund gives you a decent idea of what it might be worth.
On first sight, the roughly 35 percent discount to the price at which Hainan Air’s shares last traded looks like a good deal. Still, once you throw in net debt of $7.8 billion you’re looking at an enterprise value around 50 percent larger than that of Temasek’s key airline shareholding Singapore Airlines Ltd., despite Ebitda about 15 percent lower.
Even if all Hainan Air’s equity was sold for a single yuan, that hefty debt pile would mean it was changing hands at a higher enterprise value-to-Ebitda ratio than Singapore Air, one of the best-run carriers on the planet. That feels like a rich price to pay.
Hainan Air’s net debt, meanwhile, is larger than that of the far bigger Delta Air Lines Inc. and Deutsche Lufthansa AG, and almost 26 times Singapore Air’s modest borrowings.
Again though, it’s questionable whether a less-than-20-percent interest in a fourth-placed carrier controlled by an indebted conglomerate is a good route to that – especially when you consider that Hainan Air’s regulatory release doesn’t even mention a board seat, which should be considered the bare minimum for a strategic investment of this sort.
While there are benefits to a love-in between Temasek and HNA, the Singaporeans should extract some bargain prices in return for their cash. Judging by this first deal, there’s precious little evidence of that.
https://www.bloomberg.com/view/articles/2018-06-11/singapore-inc-buys-an-overpriced-ticket-to-hainan
Hainan Air’s shares have been suspended for six months while controlling shareholder HNA Group Ltd. is in intensive care. But the 7 billion yuan ($1.1 billion) valuation for a 20 percent stake to a group including a Temasek-owned fund gives you a decent idea of what it might be worth.
On first sight, the roughly 35 percent discount to the price at which Hainan Air’s shares last traded looks like a good deal. Still, once you throw in net debt of $7.8 billion you’re looking at an enterprise value around 50 percent larger than that of Temasek’s key airline shareholding Singapore Airlines Ltd., despite Ebitda about 15 percent lower.
Even if all Hainan Air’s equity was sold for a single yuan, that hefty debt pile would mean it was changing hands at a higher enterprise value-to-Ebitda ratio than Singapore Air, one of the best-run carriers on the planet. That feels like a rich price to pay.
Hainan Air’s net debt, meanwhile, is larger than that of the far bigger Delta Air Lines Inc. and Deutsche Lufthansa AG, and almost 26 times Singapore Air’s modest borrowings.
Again though, it’s questionable whether a less-than-20-percent interest in a fourth-placed carrier controlled by an indebted conglomerate is a good route to that – especially when you consider that Hainan Air’s regulatory release doesn’t even mention a board seat, which should be considered the bare minimum for a strategic investment of this sort.
While there are benefits to a love-in between Temasek and HNA, the Singaporeans should extract some bargain prices in return for their cash. Judging by this first deal, there’s precious little evidence of that.
https://www.bloomberg.com/view/articles/2018-06-11/singapore-inc-buys-an-overpriced-ticket-to-hainan
