HNA Group's Bankruptcy Woes

Almost US$10 billion was embezzled by HNA shareholders

Remember HNA? On the conglomerate's website it says: "Sharing dreams, bring more possibilities to the world".

How about bringing more headaches to creditors and the Chinese government for having such a big company fail spectacularly on the world stage.

Hainan Airlines started in 1993

HNA Group, which owns Hainan Airways, in a very short period of time acquired companies around the world, including Hong Kong Airlines, an office tower in Manhattan, and Red Lion Hotels, and is now bankrupt.

In addition, three units of HNA says in disclosures to stock exchanges that nearly US$10 billion had been embezzled by shareholders. But the identities of these people/companies were not named. They may be revealed later.

The three units are Shanghai-listed Hainan Airlines Holding, HNA Infrastructure Investment Group, and Shenzhen-listed CCOOP Group.

A government-led team completed due diligence earlier this month and now it can move forward into bankruptcy restructuring, that will affect up to 500 companies under HNA. Caixin has previously reported HNA had 2,300 companies.

HNA bought this NYC office tower

Hainan Airlines was founded by Chen Fang and Wang Jian in 1993, and Chen had previously worked in the civil aviation authority. Wang died in 2018 after falling off a wall on a cliff during a holiday in France.

In its early days, the airline stood out from other state-owned Chinese airlines with its punctuality, in-flight service and new fleet, and this quickly won it legions of loyal travelers and expanded. Even US financier George Soros invested in the airline, its largest foreign shareholder that helped the company expand into logistics, tourism and real estate starting in 2006.

By 2017 HNA had ballooned into a global conglomerate with 290,000 employees, and 1 trillion yuan in assets. It went on a US$48 billion spending spree, buying up stakes in Hilton Hotels and Resorts, Deutsche Bank, Frankfurt-Hahn Airport, and 400,000 sq ft at the former Kai Tak Airport site to develop into a residential apartment complex.

Chen wanted HNA to be on the Fortune 100's list of the world's largest companies by assets.

But that all came to an abrupt end in June 2017 when China's financial regulators cracked down on it and other companies that went on their respective spending sprees, like Anbang Group, Dalian Wanda Group and Fosun Group.

Ex-Anbang chairman Wu Xiaohui in prison

For example Anbang tried to take over Starwood Hotels for US$13 billion and is now put under state control, and its former chairman Wu Xiaohui in jail for 18 years for fraud and embezzlement charges.

As of June 2019 HNA had 706.7 billion yuan in debt and has not updated its status since.

Gu Gang, head of the group to restructure HNA, admitted that the expansion at break-neck speed was driven by "hasty decisions", leaving HNA with "one huge bottomless pit after another", that forced it to sell its assets. 

"All we suffered and all of our efforts served only one purpose -- a successful restructuring," Gu said. "It is only through bankruptcy and restructuring that we can be reborn."

Meanwhile Chen has been kicked out of the company's Communist Party committee, a sign that he has nothing to do with the company's restructuring. Does this mean he will face further charges?

What will happen to HNA founder Chen Fang?

Hopefully this will be the end of China's "going out" phase, reckless spending, loose credit and risky leveraging of assets for acquisitions.

So much for dreaming to take over the world...