China’s HNA Group put into bankruptcy administration

April 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

April 2021 Issue

Indebted Chinese conglomerate HNA Group and a number of its affiliates have been placed into bankruptcy administration in response to a creditors’ petition for a bankruptcy restructuring of the sprawling corporate empire.

The company, which has interests in several industries, including aviation, real estate, financial services, tourism and logistics, has grown exponentially in recent years. Between 2015 and 2017, the then-airline firm’s $40bn acquisition spree included stakes in the Hilton hotel chain and Deutsche Bank, bringing its total assets to more than $150bn.

Eventually the company’s activities drew scrutiny from the Chinese government, which stepped in and demanded accountability from the company’s management. HNA was required to undergo a massive asset selloff, including divesting assets such as airport services company Swissport and electronics distributor Ingram Micro, to pay down its arrears, which, as of its last filing, in 2019, were roughly $109bn.

When the government of Hainan, the southern Chinese province where HNA is headquartered, concluded its investigation into HNA, it was reported that around 500 companies connected to HNA may be forced into bankruptcy.

On 29 January 2021, HNA Group received a formal notice from the Hainan High People’s Court noting that one of the company’s creditors had filed an application to initiate a reorganisation procedure against the company on the grounds that it was unable to pay off debts it owed to the creditor. In a statement, HNA Group noted that it would: “Comply with the court’s instructions of judicial review in accordance with law, promote the debts disposition actively, support the court to protect the legal rights and interests of creditors in accordance with law, and safeguard our normal business to be operated successfully.”

According to stock exchange disclosures from about a dozen affiliated companies listed in Shanghai, Shenzhen and Hong Kong, the People’s High Court of Hainan Province appointed a team to manage the group’s affairs. The overseers will be responsible for managing the assets of around 60 group companies, including their accounting and business records and corporate seals, and producing a report on their financial positions in preparation for asset sales.

Creditors are to submit claims by the end of March ahead of discussion meetings set to start in mid-April. The administered companies aim to sustain normal operations, though the court appointees will have authority and discretion to halt business.

Hainan Airlines Group, HNA Infrastructure Investment Group and CCOOP Group were granted special permission to carry on their daily businesses and administer their own accounts under the leadership of a working group established by the Hainan government. An investigation ordered by Beijing in October discovered that more $15.5bn of the three companies’ combined assets had been siphoned away by HNA Group and other affiliates. Many of the misappropriations were done without required approvals from the companies’ boards or shareholders, the disclosures noted. As a result of the bankruptcy proceedings, the three companies will now be placed under probation by the Shanghai and Shenzhen stock exchanges.

HNA is one of China’s best-known companies and one of its largest conglomerates, with interests mainly in the aviation and tourism sectors. HNA Group was founded in 1993 and has since grown to a massive conglomerate featuring 14 airlines — including Hainan Airlines, Lucky Air and Grand China Air — and more than 900 aircraft.

In recent years, the company embarked on a significant acquisition spree, including in the aviation sector. These companies hold stakes in Virgin Australia, which it formerly held, Zurich-based MRO SR Technics, as well as lessor Avolon, which was purchased through HNA Group’s leasing arm Bohai Leasing. HNA has $27.5bn worth of outstanding bonds in various currencies and another $20bn in loans, according to data compiled by Dealogic.

While airline bankruptcies are not uncommon, particularly given the challenges the aviation industry has faced over the last 12 months due to the COVID-19 pandemic, this is the first big airline bankruptcy in China.

Richard Summerfield