SINGAPORE (Apr 16): CWT International (CWTI), controlled by Chinese conglomerate HNA Group which is facing liquidity challenges, on Tuesday announced it has failed to pay accrued interests and fees to lenders totalling HK$63 million ($10.9 million) which have become due and payable under a HK$1.4 billion facility.

See: HNA to face $3.1 bil liquidity crunch this quarter

As a default has occurred, the lenders have issued demands for immediate payment of the HK$1.4 billion principal and HK$63 million in interests and fees, says CWTI in a filing to the Hongkong Exchange which CWTI is listed.

This security pledged against the HK$1.4 billion facility -- including 100% of CWT, HK$1.2 billion worth of UK properties, US investment properties and golf courses in China -- are also enforceable.

If the outstanding amounts are not repaid by 9am tomorrow, the lenders have threatened to obtain possession of all charged assets and will appoint a receiver and manager over them.

In addition, the default has triggered a cross default under a HK$766 million term loan facility granted by a lender to an undisclosed wholly owned subsidiary of CWTI.

CWTI says that it is actively negotiating with relevant lenders to come up with other repayment arrangements.

Nonetheless, CWTI confirms that the group’s total asset is valued more than the above outstanding loans and related amounts. As at Dec 31, 2018, its total assets and net assets came up to HK$24.6 billion and HK$5.3 billion, respectively.

CWTI owns 100% of CWT which has two Singdollar bonds outstanding -- EJ617399 Corp maturing on Apr 18, 2019 and EK799789 Corp maturing on Feb 18, 2020.

SeeL CWT receives formal US$1 bil takeover offer from HNA

See: HNA explores sale of newly acquired CWT logistics unit

See also: HNA-linked acquirer terminates purchase of stake in Sapphire Corp

According to morning note by UOB KayHian, three Singapore REITs also have exposure to CWT.

They are AIM APAC REIT (AAREIT) with 8.4% of 3Q19 gross rental income (GRI) or $10 million, Mapletree Logistics Trust (MLT) with 9.1% of FY18 GRI or $36 million, and Cache Logistics Trust (CacheLog Trust) with 20.6% of FY18 GRI of $25 million.

Update as at 11.06pm: Managers of AA REIT, CacheLog Trust say no default on rental payments by tenant CWT

UOB says CWT could face potential breach of loan covenants and its operations could also be impacted if CWTI’s lenders enforce security.

CWTI could also see a change in control, which in turn may cause the covenants in certain loan facilities of CWT and its subsidiaries to be breached, thus resulting in cross defaults of those loan facilities.

"We have highlighted the implications on CWT, AIMS APAC REIT, CacheLog Trust and MLT. Overall, we expect CWTI’s news to potentially result in weakness for CWT’s bonds and some of the REITs bonds/perps mentioned below. We will continue to monitor and provide updates accordingly. Do take note that that CWTSP bonds are not under research coverage," says UOB.

In a separate note on MLT, UOB says its REIT manager is well aware that CWTI and the broader HNA Group are in financial distress.

See: HNA's fire sale gets into full swing from Hong Kong to London

See: High-flying HNA Group comes back to earth as scrutiny hits dealmaking

As a precaution, MLT has collected security deposits of six months from CWT.

About 30% of CWT's properties are leased to third party end-users under sub-lease agreements.

“In the event that CWT is wound up, MLT will take over these sub-leases. For the remaining 70% of leases, MLT will refer the end-users -- such as Cold Storage -- to other third party logistics providers, who could take over the leases,” says UOB.

CWT became MLT's largest tenant after MLT acquired five modern ramp-up logistics facilities from CWT for $778 million last July.

The five modern warehouses are purpose-built with good logistics specifications, such as floor loading of 20-50kN psm and floor-to-ceiling height of 9-14m.

They are located in three logistics clusters in the western region and in close proximity to Jurong Port and PSA Terminals.

“MLT should not have difficulties re-letting the properties to replacement tenants,” says UOB which has a “hold” on the MLT.