Costco - HNA Units Say $10 Billion in Funds Misused by Shareholders

Daniel Fowler
February 1, 2021

HNA Group, a debt-burdened Chinese airline operator that faced opposition in Washington to its attempt to buy a Wall Street hedge fund during a costly global acquisition spree, says its creditors have asked a court to declare the company bankrupt.

The group, which owns one of China's biggest airlines - Hainan Airlines - and is China's largest private aviation conglomerate, said in a statement that its creditors had applied to a court for bankruptcy and reorganisation.

Once an aggressive dealmaker, HNA previously held stakes in the Hilton hotel group and Deutsche Bank, and made investments spanning the aviation, tourism, real estate and financial services sectors as part of an acquisition binge.

HNA Group Co. said shareholders and affiliates misappropriated at least 63 billion yuan ($9.8 billion) of funds, deepening the woes of the indebted conglomerate that's set to be restructured. Others include Anbang Insurance Group Co.

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

A state-backed entity will become a strategic investor in what's left of HNA, and creditors will be allowed to swap their debt into equity in the new, pared-back company or gain a stake in the trust managing the divestment of the other assets, depending on their lender status, the people said.

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Beijing has been putting more pressure in recent years on opaque corporate structures, excess debt and deals it sees as overly aggressive as it tried to control capital outflows and keep its economy on an even keel.

Spokespeople for HNA, headquartered in Haikou on the southern island province of Hainan, didn't respond to requests for more information.

Friday's announcement signals that the tumultuous saga of HNA is in its final chapter. It did not give further details on who the shareholders were.

The HNA bankruptcy move came after a local government-led working team concluded due diligence at HNA earlier in January, and laid out risk disposal plans, enabling it to move to the next stage of resolving a multi-year liquidity crisis.

The latest development comes a week after a government-appointed working group finalised a risk disposal plan and two senior executives, including executive chairman Gu Gang, resigned.

The company's co-founder, Chen Jian, a member of the ruling Communist Party, was removed as head of a party committee at the company this week, according to the business magazine Caixin.

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