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...

Mysterious Circumstances, Mysterious Death

HNA group chairman Wang Jian died while visiting France

Just what happened to HNA group chairman Wang Jian?

It's shocking to hear the 57-year-old was posing on a wall in the small village of Bonnieux in Provence, France, when he fell 15 metres and then died from his injuries.

He was apparently trying to pose for a photograph when he fell from the wall that overlooked a cliff. He tumbled 10 to 15 metres to the rocks below.

Wang and Chen Feng set up the regional airline, HNA

Definitely not a good way to go.

It's an unfortunate time for Wang to pass away when his company, HNA is feeling the pressure from the Chinese government to shed its acquisitions that have been bought on ever increasing debt.

When Wang started HNA with co-founder Chen Feng, the company was a small regional airline based in Hainan province. From there it somehow managed to leverage its assets to become a conglomerate with assets worth and staggering US$230 billion.

Wang was apparently the mastermind behind all these deals, including a 25 percent stake in Hilton Hotels, Deutsche Bank, and four plots of land in Kai Tak it bought at record prices. It had planned to use some of the land to build housing for its staff.

The company also bought a luxury home on the Peak now worth around HK$550 million and is hoping to use it as collateral to pay off some of its debts. Who wants to underwrite that deal?

HNA bought four plots of land at Kai Tak at record prices

HNA even attempted to buy the hedge fund business set up by Anthony Scaramucci, a former White House communications director, but the deal was thwarted by the Committee on Foreign Investment in the United States, an intergovernmental panel that reviews overseas acquisitions of American companies.

But those ambitious dreams are over now that HNA has had to shed these acquisitions as fast as it it has bought them in the first place.

Also questionable are some of the public listed companies under HNA. Seven of those companies have had their shares suspended for months, pending on what the parent group said was a restructuring.

Then HNA said the companies would resume trading on June 9, but since then the company has not announced any new changes to its business and the shares remain suspended.

There are still questions around who really owns HNA. Wang and Chen each own a 15 percent stake, there's another mysterious shareholder, Guan Jun, who has transferred his 30 percent stake of the company into a charitable trust that was set up in New York.

Guo Wengui has claimed HNA has bribed officials

Why would he donate his shares to a charity called Hainan Cihang Charity Foundation?

Fugitive billionaire Guo Wengui has been posting images and documents on Twitter and YouTube, alleging that HNA has bribed government officials and given relatives of at least one senior government official a major stake in the company -- possibly through Guan.

HNA had strongly denied the allegations and vowed to file a defamation suit against Guo, who once had close ties to China's top spy agency.

What's interesting is that the media went through great lengths to verify Wang's death, calling the gendarmeries in Provence, because with the way things go with HNA, you are never quite sure if they are true or not...