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HONG KONG – Its lenders are going bankrupt. Its president and co-founder has been quietly stripped of all power. Almost $ 10 billion of his money has been embezzled.
HNA Group, the vast Chinese conglomerate that has thrown tens of billions of dollars into trophy companies around the world, is on the verge of the biggest corporate collapse in recent Chinese history. Its dismantling is an extraordinary turn of events for the company which started out as a regional airline in the southern province of Hainan in southern China, and has acquired significant stakes in Hilton Hotels, Deutsche Bank, Virgin Australia. and others. At its peak, HNA employed 400,000 people worldwide.
For Chinese leaders, HNA is now a cautionary tale. Its story offers a glimpse into how Beijing treats its most powerful entrepreneurs. China has taken a firmer hold on the economy, and regulators recently encircled another empire – that of China’s most famous billionaire Jack Ma.
“It’s a precise reminder to the Chinese private sector and to big business and high-level executives that you are never more important than the Communist Party,” said Jude Blanchette, Chinese researcher at the Center for Strategic and International Studies in Washington. . “Controlling large companies is not exactly central planning, but it is certainly about putting safeguards on the behavior of companies to ensure that they are moving in the right direction.”
Pressure is mounting on companies whose behavior could pose a risk to the Chinese financial system. Xi Jinping, China’s top leader, said late last month at a meeting of top Communist Party officials in the country that the government needs to foresee and anticipate risks even as it continues to grow. He urged officials to make plans to deal with the “gray rhino” events, referring to important and obvious problems in the economy that are ignored until they become urgent threats. Chinese media had often referred to HNA as a gray rhino before its decline.
The party has strengthened its position in the private sector in recent months and urged entrepreneurs to “identify politically, intellectually and emotionally” with its goals. He also pledged to prevent what he called “the disorderly expansion of capital,” a reference to the type of lavish spending of borrowed money for which HNA had become known.
Chinese online shopping giant Alibaba Group is among the party’s recent high-profile targets. In December, authorities opened an antitrust investigation into the company, co-founded by Mr. Ma. A month earlier, days before a planned initial public offering by Mr. Ma’s financial giant, Ant Group, regulators intervened for the ‘Stop.
HNA was once the face of modern business in China, a leader of the first wave of Chinese private enterprises with political backing to make large global acquisitions. Its propensity to top up on borrowed money to buy stakes in world-famous names was costly and risky, and apparently dared regulators in Beijing and around the world to bring it to heel.
As HNA’s creditors wait for a Chinese court to approve their bankruptcy and restructuring request, questions arise as to the extent of the conglomerate’s problems. It has $ 200 billion in debt it can’t pay off, and those owed money will have to sift through dozens, if not hundreds, of its subsidiaries, said Michelle Luo, bankrupt lawyer at the firm. of Hui Ye lawyers.
The task became even more difficult after three of HNA’s subsidiaries revealed late last month that shareholders of HNA and dozens of subsidiaries had embezzled nearly $ 10 billion in corporate funds to pay off their own debts. spiral. HNA Group was one of dozens of shareholders and subsidiaries listed in the disclosures that allegedly embezzled money. Hainan Airlines, one of HNA’s subsidiaries, said some funds had been taken to pay for the wealth management products, but did not provide any specific details.
HNA’s insolvency is the largest China has seen since the country started using its bankruptcy law in 2007, Said Ms. Luo. It will also test the strength of the law – only 76 publicly traded companies have gone through bankruptcy proceedings in China.
Much of the restructuring of HNA will likely take place behind closed doors and with strong state involvement. Officials from China’s Civil Aviation Administrator and the China Development Bank, the country’s main political bank, stepped in last year to take over management of some of the company’s affairs, and two government officials joined the board of directors.
The fate of Chen Feng, chairman and co-founder of HNA, has been called into question since he was struck from a list of Communist Party committee members of HNA, the company’s main decision-making body, according to an official statement at the end of last month.
In developing HNA, Mr. Chen imprinted his corporate culture with his own personal interests as a Buddhist and calligrapher. Former People’s Liberation Army pilot Mr. Chen said he was different from other entrepreneurs. “I don’t drink, I don’t smoke, I don’t banquets, I don’t go to karaoke or get a massage,” he once told the South China Morning Post. He had the company’s headquarters in Hainan built to resemble a Buddha.
For years, the doors have been opened for the company. He received cheap funding from Chinese state-backed banks. Its leaders had the kind of political connections that Chinese private companies could only dream of.
During his first state visit to Britain, China’s top leader Xi Jinping made an appearance at an event in Manchester for HNA’s Hainan Airlines. Mr. Chen was once an assistant to Wang Qishan, the vice president of China. Another HNA executive has entered into a partnership with Wen Jiabao’s son, the former Chinese premier, The New York Times reported in 2018.
HNA also had influence abroad. One of its first backers was George Soros, the billionaire investor. Its leaders mingled with Wall Street power brokers at black tie galas and met with key leaders in Washington. They struck a trade deal with Governor Jeb Bush. They attempted to buy Skybridge Capital, an investment firm co-founded by Anthony Scaramucci, who at the time expected to become a liaison between the White House and the American business community. (The deal was scrapped after the companies realized regulators wouldn’t approve it.)
But HNA’s glory days came to be numbered when Chinese authorities began to examine the massive debt that HNA and some of its politically linked peers like Anbang Insurance Group, Fosun International and Dalian Wanda were taking to fuel their global shopping sprees.
Authorities took control of Anbang, a struggling insurance conglomerate that owned the Waldorf Astoria hotel in New York City, and sentenced its founder, Wu Xiaohui, to 18 years in prison for fraud. Wanda, former owner of AMC Entertainment, and Fosun, owner of Club Med and luxury fashion house Lanvin, quickly sold some of their acquisitions overseas.
As HNA turned to its own growing bill, it began to shed some of its businesses. It has also sought to borrow money from its own employees by offering them high-interest investment products.
The Chinese government has not commented on the dismantling of HNA. The China Securities Regulatory Commission and the Hainan Supervisory Bureau of the China Securities Regulatory Commission did not respond to a faxed request for comment. HNA did not immediately respond to requests for comment.
Chinese state-controlled media have sought to portray HNA’s bankruptcy proceedings as a move to protect the company’s assets rather than an attempt to strip it to the bone.
“The goal of bankruptcy and restructuring is not to ‘destroy’ but to ‘build’,” a commentary in the Shanghai Security News said. “It can also be seen as a ‘rebirth’.”
On Chinese social media, some customers of HNA’s airlines have asked if their tickets will be refunded, while people who have invested in its investment products complained that the company will reimburse banks before recovering any money. borrowed from ordinary people. Others said they weren’t surprised at the company’s ultimate fate.
“In the end, HNA Group has always failed,” Chen Haijian, a finance professional in Nanjing, wrote on his personal page on WeChat, a Chinese social media platform.
“It feels like people have been saying this sentence for over 10 years.”
Cao Li contribution to Hong Kong reports.
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