Caixin
May 01, 2021 09:16 PM
BUSINESS & TECH

HNA Units’ $15 Billion in Losses Show the Challenges in Store for Restructuring China’s Profligate Conglomerates

Among HNA’s nine listed companies that reported a net loss for 2020, Shanghai-listed Hainan Airlines set a record for Chinese mainland-listed companies with a net loss of 64 billion yuan. Photo: VCG
Among HNA’s nine listed companies that reported a net loss for 2020, Shanghai-listed Hainan Airlines set a record for Chinese mainland-listed companies with a net loss of 64 billion yuan. Photo: VCG

HNA Group Co. Ltd.’s 13 listed companies reported combined net losses amounting to nearly 100 billion yuan ($15 billion) for 2020, as they set aside enormous sums to absorb potential losses from the Chinese conglomerate’s bankruptcy restructuring.

The sheer size of the reported losses offers a clearer picture of the challenge that HNA’s restructuring poses to government efforts to deal with the hidden financial risks built up by its sprawling private conglomerates. The single bankruptcy restructuring case, which covers HNA and 320 of its related companies, is the culmination of the years that the conglomerate spent trying to crawl out from under the heap of debt it amassed during a global buying binge that at one point swelled its total assets to 1.2 trillion yuan.

Once one of China’s most prolific and profligate dealmakers, HNA attracted global attention for purchases including stakes in hotel giant Hilton Worldwide Holdings Inc. and banking titan Deutsche Bank AG.

Among HNA’s nine listed companies that reported a net loss, Shanghai-listed Hainan Airlines Holding Co. Ltd. (600221.SH) — whose stock has been slapped with “special treatment” status, meaning it is in danger of being delisted — set a record for Chinese mainland-listed companies with a net loss of 64 billion yuan for 2020.

Hainan Airlines made provisions for losses from a variety of sources, such as its deposits with HNA’s financial affiliate, accounts receivable from related parties, as well as certain guarantees, which in total amounted to 30 billion yuan, according to its annual report (link in Chinese).

The airline unit is followed by HNA Technology Co. Ltd. (600751.SH) with a loss of 9.8 billion yuan. HNA Technology owns Ingram Micro Inc., one of the world’s largest distributors of information technology products and services.

The company set aside 5 billion yuan to cover potential losses on its guarantee for loans taken by HNA and its related companies, according to its annual report (link in Chinese). Because those companies defaulted on payments in 2020, some of their creditors have filed lawsuits against HNA Technology, the company said.

HNA Infrastructure Investment Group Co. Ltd. (600515.SH), a listed unit in HNA’s airport business whose shares are also under special treatment status, reported 7.7 billion yuan (link in Chinese) in losses for 2020. It owns Sanya Phoenix International Airport, located in the island resort city of Sanya, South China’s Hainan province.

Due to HNA’s difficulties paying its bills and its ongoing bankruptcy restructuring, HNA Infrastructure made provisions for potential credit and asset losses on assets and accounts receivable totaling 3.5 billion yuan, according to its announcement (link in Chinese) released Friday.

HNA’s retail operations mainly consist of CCOOP Group Co. Ltd. (000564.SZ) — whose shares are also under special treatment status. After being acquired in the early 2000s, CCOOP grew into a retail heavyweight only to end up being used like an ATM by HNA and its subsidiaries.

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

CCOOP reported a net loss of 4.5 billion yuan (link in Chinese) as it set aside 2.9 billion yuan to cushion potential credit and equity investment losses linked to HNA and related companies that are now insolvent, according to its Friday announcement (link in Chinese).

Five other HNA units that reported net losses for 2020 are Bohai Leasing Co. Ltd. (000415.SZ), HNA Innovation Co. Ltd. (600555.SH), Hong Kong-listed Hainan Meilan International Airport Co. Ltd., HNA Technology Investments Holdings Ltd. and Hifood Group Holdings Co. Ltd.

Four of HNA’s listed companies had net profits ranging from 14 million yuan to 283 million yuan.

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HNA Seeks Long-Term Investment in Step Toward Bankruptcy Restructuring

As part of its restructuring process, HNA is seeking strategic investors for its airline, airport and retail businesses. Four private companies have submitted bids for HNA’s airline assets, which include record money-losing Hainan Airlines, according to a source close to the working team that the Hainan provincial government set up last year to defuse the conglomerate’s debt crisis.

Contact reporter Luo Meihan (meihanluo@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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