Feb 05, 2021 08:16 PM

In Depth: How HNA’s Teetering Empire Left One Listed Company Looted

HNA, a vast conglomerate best known as the parent of Hainan Airlines, one of China’s largest carriers, bought its 25.65% stake in CCOOP from a local government in 2003. Photo: VCG
HNA, a vast conglomerate best known as the parent of Hainan Airlines, one of China’s largest carriers, bought its 25.65% stake in CCOOP from a local government in 2003. Photo: VCG

The Chinese conglomerate HNA Group Co. Ltd. once had big plans for the company now known as CCOOP Group Co. Ltd.

For more than a decade after HNA bought a controlling stake in what was then a regional grocery store operator, CCOOP went on a nationwide acquisition spree as it sought to gorge its way to becoming China’s answer to Walmart Inc.

From 2003 to its last major acquisition deal in 2016, CCOOP’s total assets swelled by 46 times to 45.2 billion yuan ($7 billion), in part by consolidating the retail operations of its controlling shareholder. It also invested in areas like logistics and warehouses as it built itself into a retail heavyweight with supermarkets in 27 regions across the country.

But by 2019, the company was bleeding red ink. Last year, it lost an estimated 4.3 billion yuan, according to a statement it released Saturday.

Things had come to a head the day before, when CCOOP and two other listed companies linked to the conglomerate separately disclosed that that their creditors had asked a court to force them into bankruptcy restructuring — the same day HNA did likewise.

How CCOOP went from a rapidly growing Walmart wannabe to teetering on the verge of collapse in four years, is less about its own missteps — though there were some — than about the malfeasance of its controlling shareholder. A look at CCOOP’s financial moves over the last 20 years paints a picture of a company that had been used like an ATM by HNA and its subsidiaries, first through financial self-dealing, and then later, according to CCOOP, straight-up embezzlement.

The looting of CCOOP sheds light on the complexity of HNA’s vast empire as it faces the possibility of its own bankruptcy, which could involve at least $100 billion in debt and have a far-reaching fallout on corporate China. Already, a government-appointed working group expects that 400 to 500 companies linked to the conglomerate will eventually need to go through restructuring, sources told Caixin.

No firewall

HNA, a vast conglomerate best known as the parent of Hainan Airlines, one of China’s largest carriers, bought its 25.65% stake in CCOOP from the government of the northwestern city of Xi’an in 2003.

At the time, HNA planned to turn CCOOP into a grocery giant that could serve as a piece of a sprawling commercial empire covering air travel, hotels and retail. However, there was speculation at the time that HNA was having cash flow problems and was interested in the Xi’an-based company because selling groceries was primarily a cash business.

One of the first eyebrow-raising moves took place in 2004, when the retailer made a 190 million yuan three-month deposit with HNA Group Finance Co. Ltd, a financial services unit of HNA, according to CCOOP’s interim report for that year. Local media reported at the time that the decision to make the deposit never went in front of CCOOP’s board.

In response to all the raised eyebrows, CCOOP shareholders convened an extraordinary general meeting in October 2004. At the meeting, five of the shareholders, which held a combined 28% stake in company, unanimously agreed to rely exclusively on HNA Group Finance for any of the business that HNA Group Finance typically does, though they capped how much they would deposit at 150 million yuan, according to a CCOOP statement dated Oct. 25, 2004.

The shareholders’ decision effectively eradicated the corporate governance barriers between CCOOP and an outside company — one that just happened to be controlled by its largest shareholder.

Later, it would make other deals that clearly benefited its controlling shareholder. In 2008, HNA transferred its stake in CCOOP to another connected company, HNA Retailing Holding Co. Ltd. From 2008 to 2015, CCOOP made a series of acquisitions, shelling out billions of yuan for stakes in companies that HNA Retailing had an interest in — usually at a premium, according to information from past CCOOP statements. In one example, CCOOP acquired four retail companies, most of which were poorly managed, from HNA Retailing in separate deals worth 2.07 billion yuan, some of which it raised by issuing debt and new shares.

By the end of 2015, CCOOP’s assets had grown to 9 billion yuan, from about 975 million yuan at the end of 2003, according to its annual report that year. In 2016, the company raised 26.9 billion yuan for an acquisition of a supply chain management company that HNA Retailing and its related companies held a combined 47.7% stake in. To fund the deal, CCOOP issued 5.25 billion new shares, boosting its total number of shares to 6 billion — seven times its total amount of stock at the time.

In September 2019, months before the Hainan provincial government sent a team to try to defuse HNA’s debt crisis, HNA Retailing offloaded 5% of its stake in CCOOP to the listed company’s second-largest shareholder, New Cooperation Trade Chain Group Co. Ltd.

The price of the deal was not disclosed.

Hands in the till

The pace of CCOOP’s expansion would slow over the next few years, but the money continued to flow out, though through less arcane means. In its statement on Saturday, the company said that an audit it conducted on itself turned up 19 billion yuan that had been embezzled by HNA Retailing and its related companies.

The 19 billion included 13.7 billion yuan that was embezzled from four one-year wealth management products that two of its subsidiaries purchased in 2019 and last year, according to the statement. The rest came from losses that CCOOP’s subsidiaries incurred on guarantees they made for loans that HNA Retailing and its related companies took out but failed to pay back on time.

CCOOP was not the only listed company in the HNA empire to make allegations of embezzlement. Hainan Airlines Holding Co. Ltd. and HNA Infrastructure Investment Group Co. Ltd., both listed in Shanghai, accused their shareholders and related parties of embezzling a total of 42.5 billion yuan in company funds, according to filings to the exchange Saturday.

CCOOP said in a statement Saturday it will urge the parties involved to repay it with cash or assets.

The brazen behavior of companies in the HNA empire ultimately boils down to a failure of corporate governance among HNA and its vast number of related companies, said a person with knowledge of the government-appointed team’s investigation.

“Although those listed companies have their own boards, they don’t have control over their own finances,” the source told Caixin. “Among HNA, its affiliated companies and the listed ones, there is no firewall.”

A previous version of this story incorrectly described HNA Group Co. Ltd. as a state-owned enterprise. It is not state-owned.

Contact reporter Lu Yutong ( and editor Michael Bellart (

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