Hainan Officials Take the Controls as HNA Sends Distress Call

The Hainan government has moved to take direct control of HNA Group with the appointment of two state officials to leadership roles on the company’s board, according to announcements over the weekend by the financially troubled aviation and investment conglomerate.

Gu Gang, chairman of Hainan Development Holdings, the province’s main investment body was named HNA’s executive chairman and head of the newly formed Hainan HNA Group Joint Working Group, which the company said was established to stabilise the company after its attempts at “self-rescue” had failed to resolve risks rising from a debt load that once totalled over $100 billion.

HNA, which controls 14 air passenger firms including Hainan Airlines and Hong Kong Airlines, said that these failed efforts, along with new risks posed by the coronavirus outbreak had prompted it to request state assistance.

During the past two years, HNA had repeatedly defaulted on credit obligations built up during an earlier buying spree including failing last year to repay a HK$1.4 billion loan, which resulted in creditors seizing its assets. In its statement HNA noted that it expects liquidity risks to rise still further.

Cadres Join the Board

In addition to Gu Gang stepping in as executive chairman, Hainan Yangpu Economic Management Development Zone Management Committee director Ren Qinghua has been appointed co-CEO of the group alongside incumbent CEO Adam Tan.

HNA founder Chen Feng is set to remain as chairman, with his son, Chen Xiaofeng, also retaining a board seat.

With the appointment of the Hainan government officials, former HNA directors Zhang Ling, Bao Qifa and Chen Wenli have all left their positions, according to an update on the company’s website.

The establishment of the working group, which HNA says it requested, “In order to effectively resolve risks and safeguard the interests of all parties,” appears to put key decision-making power in the official hands. The government takeover comes after HNA had struggled to unload assets purchased in a record-breaking buying streak which ended in 2017 when the company was targetted by the central government as an excessive debtor.

With Gu heading the working group, Ren will serve as his deputy. Also included in the emergency decision-making body are Li Shuangchen, an official with the Civil Aviation Administration of China, which regulates mainland airlines and Cheng Gong, a deputy director with the Credit Management Bureau of China Development Bank, which had funded much of HNA’s ill-fated acquisition campaign.

The state takeover had been reported late last month after Hong Kong Airlines had announced the layoffs of 400 employees in early February and the virus crisis crimped the operations of HNA’s other airlines.

Investors Cheer Takeover

While the ongoing coronavirus outbreak in China damaged HNA’s outlook, it was not the sole problem facing the organization. Adamas Asset Management managing director Brock Silvers said that the outbreak has exposed a problem that has existed for years.

HNA sold its last UK property in November at a 24 percent markdown from the £131 million ($129 million) it had paid to acquire the Canary Wharf asset in 2016.

The firm had to offer an identical 24 percent discount during the same month of 2019 in order to offload a set of golf courses in Washington State which it had acquired for $113 million in 2016.

Silvers said that the appointment of senior state officials should spell out good news for investors. The main objective will likely be dealing with large amounts of debt that built up during HNA’s acquisition spree.

At the time of publishing, HNA owned entities saw stock prices rise on Monday following their announcement of government assistance.