Understanding How China’s HNA Group Rose and Fell

(Bloomberg) -- China's HNA Group Co. shot to prominence by spending more than $40 billion on acquisitions across six continents from 2016. But the breathtaking spree drew questions from regulators about the group's opaque ownership structure and its struggle to manage spiraling debt. The scrutiny prompted a reversal of course and an equally dramatic selling spree. Now the shock of the coronavirus outbreak has led Chinese authorities to effectively take control of HNA's day-to-day management, paving the way for a breakup.

1. Where did HNA come from?

Founded in 1993 as a regional airline operator, with George Soros as an early investor, HNA created 410,000 jobs worldwide and built up assets of about $180 billion, according to the company. Guo Wengui, a wealthy Chinese businessman who now lives in exile, has alleged that HNA has secret financial ties to top Communist Party officials. HNA denied Guo's claims.

2. What did it own at its peak?

HNA was perhaps the most prominent of the Chinese acquirers that went from near obscurity to making a splash in the past decade. The once little-known airline operator became a major shareholder of Hilton Worldwide Holdings Inc. and Deutsche Bank AG as well as paying large sums for high-end properties from Manhattan to Hong Kong. Among China's big spenders, HNA stood out as the most aggressive as it threw tens of billions of dollars into everything from golf courses to luxury homes.

3. Who owned HNA?

HNA disclosed in 2017 that it was controlled by two company-connected charities named Cihang that together owned 52%, and that 12 company officials, including founders Chen Feng and Wang Jian, the company's number two who died in 2018, together held about 47.5%. The officials have pledged to give their shares to the charities upon death or retirement, according to HNA. Prior to that, a little-known investor named Guan Jun had been HNA's biggest shareholder, with a 29% stake, according to corporate filings. When HNA reorganized in early 2017, Guan distributed most of his holdings to five individuals, who then donated the shares to HNA's Cihang foundation.

4. What led to HNA's downfall?

The group went too far, too fast -- but it was also struck by misfortune. The company didn't generate enough profit to cover its interest payments and its short-term debt soared to more than 192.6 billion yuan ($28 billion) in 2017. In 2018, there were missed payments to banks and shares of several HNA units were suspended. It has cut its stake in Deutsche Bank and sold its shareholding in two Hilton spinoffs, as well as its stake in Hilton. Then last November, a renewed focus at HNA on aviation proved to be ill-timed. The group said it would divide its businesses into airlines, aviation leasing and airports, with the rest being lumped under its “non-aviation asset management” unit. Two months later, concerns about the spread of the coronavirus started to hammer any company tied to the travel industry. Globally, about 80% of China flights have been halted.

5. What happens now?

Some kind of asset-stripping process is likely. People familiar with the matter have said state authorities will now go through HNA's books to figure out how to sell off businesses and pay off debt. While HNA has said it hasn't been taken over, the government is certainly tightening its grip. Even before authorities installed fresh leadership at HNA, Bloomberg reported in February that China was close to taking control and might sell off some airline units.

The Reference Shelf

• Read Bloomberg Businessweek's 2017 cover story on HNA: The Conglomerate That Troubles China
• HNA's share pledges amount to at least $24 billion.
• More on Guan Jun, HNA's mystery man.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Paul Geitner, Will Davies

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