Shares of struggling HNA group units in China collapse as creditors seek bankruptcy

HONG KONG / SHANGHAI (Reuters) – Shares of listed companies linked to China’s HNA group collapsed on Monday, after the ailing conglomerate revealed that its creditors had filed for bankruptcy and nearly $ 10 billion had been embezzled by the shareholders of its three units.

The decision to file for bankruptcy came after the group was subjected to a restructuring exercise led by the Hainan government to resolve its liquidity risks resulting from years of aggressive overseas acquisitions.

HNA, whose flagship business is Hainan Airlines, has used a $ 50 billion global acquisition spree, mostly fueled by debt, to build an empire with stakes in companies from Deutsche Bank to Hilton Worldwide.

On Monday morning, HNA-related stocks, including Hainan Airlines Holding, HNA Innovation, CCOOP Group, HNA Technology and Bohai Leasing, fell between 5% and 10%.

HNA, once one of China’s top-performing companies, said Friday evening that its creditors had asked a court in Hainan to bankrupt the company and restructure it.

Hainan Airlines, HNA Infrastructure and CCOOP revealed on Saturday that a total of $ 9.6 billion had been embezzled by shareholders and other related parties. He did not give more details on the identity of the shareholders.

“Basically a bigger but very old story at stake – if you grow your business by borrowing money … you better have the money to pay for it all,” said Fraser Howie, independent commentator and author of books on the Chinese financial system. .

Noting China’s past history of acquisitive conglomerates, he said, “Each of them has been dismembered, dismantled and restricted to varying degrees. This type of business is gone and is not coming back. “

Beijing has put more pressure in recent years on opaque corporate structures, excess debt and deals it sees as too aggressive as it tries to control capital outflows and keep its economy on its feet. equality.

While the scope of HNA’s restructuring was not immediately clear, some bankers do not expect a commercial sale process to be launched for its core businesses, including Hainan Airlines, which they say would likely be merged with a state airline.

HNA started selling many of its trophies three years ago to focus on its airlines and tourism businesses, after its massive spending caught the attention of the Chinese central government and other foreign regulators.

In recent years, it has sold assets such as airport services company Swissport and electronics distributors Ingram Micro. The COVID-19 pandemic, however, has put pressure on the airline industry and exacerbated its liquidity problems.