Caixin
Jan 30, 2021 02:10 AM
BUSINESS & TECH

HNA Group Moves Toward Bankruptcy Restructuring Under Mountain of Debt

A years-long spending spree boosted HNA’s net assets to 1.2 trillion yuan ($171 billion) at its height.
A years-long spending spree boosted HNA’s net assets to 1.2 trillion yuan ($171 billion) at its height.

China’s once high-flying conglomerate HNA Group moved toward bankruptcy restructuring on the demand of creditors after it struggled under a mountain of debt incurred during a spending spree that boosted its net assets to 1.2 trillion yuan ($171 billion) at its height.

Hainan-based HNA received notice from a local court of creditors’ requests for its bankruptcy restructuring, according to a statement published on the company’s official social media account, the company said Friday. HNA will cooperate with the court’s reviews and push forward debt restructuring to protect creditors’ legal rights while ensuring the company’s smooth operation, the company said.

Once a prominent dealmaker in global acquisitions by Chinese companies, HNA attracted attention for its aggressive purchases, including a stake in hotel giant Hilton Worldwide Holdings Inc. and banking titan Deutsche Bank AG. Its overseas assets once amounted to more than $50 billion.

HNA, whose businesses range from aviation to real estate to financial services, is one of several Chinese conglomerates that embarked on aggressive buying campaigns in the 2010s, only to later struggle under huge debt loads. Others include Anbang Insurance Group Co. Ltd. and Dalian Wanda Group Co. Ltd. Since 2017 HNA has steadily pared back its assets, selling stakes in Hilton Worldwide and a number of real estate holdings.

The company’s rapid expansion came to a halt in 2017 amid a government crackdown on debt-driven spending, leaving HNA deeply mired in a debt crisis. The latest financial report it published, covering the first half of 2019, showed that the company had 706.7 billion yuan ($109 billion) of debt, putting its debt-to-assets ratio at 72.07%.

But that could be just the tip of the iceberg. Several people told Caixin that the financing tools such as trust lending and short-term notes used to fuel its rapid expansion make it hard to gauge HNA’s actual financial situation, and the company’s asset values could also be inflated by those financing tools.

Under China’s bankruptcy law, companies that are insolvent and unable to repay debts can take as long as nine months for a bankruptcy restructuring. If no restructuring agreement is reached after that, the company will be liquidated.

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HNA’s financial woes deepened as its core aviation business suffered during the coronavirus pandemic, triggering the government of Hainan — the southern island province where HNA is based — to step in. The provincial government set up a working team in February to help resolve HNA’s risks and ease its liquidity issues.

The working team contacted HNA’s creditors to discuss a restructuring plan, which may involve debt-to-equity swaps and inviting in new strategic investors, a person close to the working team said.

The team hopes to use various measures to reduce HNA’s debt to an acceptable level to maintain its stable growth in the next two years and fully repay debts in five to eight years, the person said.

Caixin learned that the working team held meetings with 280 HNA creditors last week to brief on the restructuring plan.

A restructuring means that HNA’s major shareholders may lose their stakes in the company. According to information released by HNA in July 2017, the company’s two largest shareholders were charitable funds. One, the U.S.-registered Hainan Cihang Charity Foundation, held 29.5% of the company while a similarly named foundation based in Hainan held 22.75%. Its co-founders Wang Jian, who died in 2018 in an accident in France, and Chen Feng, each with a 14.98% stake, were the biggest individual shareholders.

Last week, HNA said the working team completed due diligence work and signed off on a risk disposal plan, marking a key step forward in tackling HNA’s troubles. The company didn’t specify any details of the risk disposal plan.

On Thursday, HNA revealed a major management reshuffle as its co-founder Chen was left off of the company’s Communist Party committee, a key decision-making body with powers similar to the company’s board. Gu Gang, who heads the government working team, replaced Chen as head of the committee. Chen still remains chairman of the company.

Lu Yutong contributed to this story.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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