China’s HNA Group, once one of the country’s most prolific global investors, has been sued by its creditors for failure to pay debts and is entering bankruptcy, according to a series of recent statements by the parent company of Hainan Airlines.
In a notice on its corporate WeChat account on Friday, the company which was once paying above market rates for trophy buildings in London and New York, said that it had been informed by the high court in Hainan province, where it is based, that it had been sued by its creditors due to failure to pay overdue debts.
“Bankruptcy reorganization is an inevitable move for HNA to steadily promote risk resolution and to protect the company,” HNA party secretary Gu Gang said at a meeting of company staff on 29 January, as reported on the group’s WeChat on Saturday. Gu, a Hainan provincial government who joined HNA as executive chairman last year, added that the bankruptcy has been undertaken as part of a plan mapped out to maintain the company’s operations and support its workforce.
Gu reassured the company’s staff that HNA’s “debt, equity, and management will be reorganized and re-engineered in accordance with the principles of ‘rule of law, market forces, and operability’ to protect the interests of all parties as much as possible,” according to the company statement.
Non-Airline Assets to Be Liquidated
The set of announcements by HNA Group, comes after Gu and another Hainan official were named to top level positions in the company in March of last year as it struggled to follow through on a debt reduction plan which had been mandated by the central government since 2017.
The company had indicated in a statement last week that a joint working group headed by Gu had settled on a debt reduction plan. That scheme includes HNA, which controls Hong Kong airlines and a host of other mainland carriers in addition to Hainan Airlines, selling off its non-airline assets, according to an account in Bloomberg.
The plan also appears to include removal of HNA founder, and until recently chairman, Chen Feng, whose name did not appear on a leadership roster published by HNA on 26 January. In September of last year Chen Feng, dubbed the Buddhist billionaire for his traditional Chinese costumes, had been placed on a debtor list which banned him from flying or staying in luxury hotels after HNA had failed to make payment on a debt.
In December HNA agreed to sell Ingram Micro to US fund manager Platinum Equity in a $7.2 billion deal. The group had purchased the electronics distributor at a $6 billion valuation in 2016, but last May failed to make a $750 million payment on a $4 billion loan used to finance the acquisition.
In November 2019 HNA had sold its last London asset, 17 Columbus Courtyard on Canary Wharf, for £100 million (then $129 million), after having purchased the office block for £131 million in 2016. During that same month, the group also sold a set of US golf courses at a 24 percent markdown from what it had paid to acquire them, with other assets also being liquidated at discounts.
In April 2019 CWT International, a Hong Kong-listed subsidiary of HNA Group, revealed that creditors had seized its assets in Singapore, China and the US, after the company defaulted on a short-term loan.
Now bankrupt, HNA is fully in the hands of regulators and banks, who can be expected to ruthlessly reorganize the company,” said Brock Silvers, chief investment officer at real estate fund manager Kaiyuan Capital. “Some HNA business lines have value and will likely survive, but the company as a whole may now be just as dependent upon politics as economics.”
In a shopping spree that reached its peak with a $30 billion surge of acquisitions from January 2016 through mid-2017, apart from its real estate deals, HNA acquired a 15 percent stake in Deutsche Bank and a 25 percent share of Hilton Hotels Group, as well as buying Minnesota’s Carlson Hotels. Most of these holdings have since been disposed of entirely or in part.
In June 2017 China’s primary banking regulator instructed some of the country’s biggest banks to scrutinise lending to HNA, as well as to Wang Jianlin’s Dalian Wanda and Guo Guangchang’s Fosun Group as the government grew concerned over debt levels and outflows of foreign exchange.
One month later, Bank of America Merrill Lynch told its team to stop working on transactions with HNA Group, after Citigroup and Morgan Stanley had already taken similar steps.
In late July 2017 HNA further worried creditors when it said that its largest shareholder, Guan Jun, a 30-something Beijinger, recently gave his 29 percent stake in the company – then worth around $18 billion – to a charity. The company’s then CEO Adam Tan, subsequently told the Financial Times that Guan and another shareholder had never been the beneficial owners of their shares, “but had just held the stake for us.”