Fallen Giant HNA to Be Restructured With Asset Sales Planned

(Bloomberg) -- China's HNA Group Co. is set to be restructured over its failure to repay debt, further cementing the decline of the once high-flying conglomerate and Deutsche Bank AG investor that was seized by the state almost a year ago.

HNA's creditors applied for the group to be reorganized, the company said in a statement posted on its website. HNA intends to cooperate with the court and to “actively promote” the disposal of its debt pile, which at one point was among the largest in the world.

Regulators in China have approved a restructuring plan for the group, people familiar with the matter earlier told Bloomberg News. The government of China's Hainan Island -- which effectively took control of HNA last February as the onset of the pandemic pushed its aviation flank to the brink -- plans to dispose of the group's non-aviation assets through a trust, said the people, asking not to be identified because the plan is yet to be made public.

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.

Stripped Bare

“HNA is being stripped to its bare bones,” said Andrew Collier, managing director of Orient Capital Research in Hong Kong. “They are sort of going back to their roots, and the creditors are struggling to find any decent properties they can sell to get back their money.”

Read more: China Said to Plan Sale of HNA's Non-Aviation Assets Via a Trust

A spokesman for HNA didn't respond to requests for further comment, while calls and an email to the Hainan government weren't immediately returned.

Friday's announcement signals that the tumultuous saga of HNA is in its final chapter.

Founded as an airline in the 1990s by entrepreneur Chen Feng with seed money from George Soros, the company emerged from near obscurity to mount a buying binge that saw it become the top shareholder of Deutsche Bank and Hilton Worldwide Holdings Inc. Plowing more than $40 billion into everything from golf courses to landmark hotels across six continents, it was the poster child for a cabal of Chinese empire builders that borrowed rapidly to buy up trophy assets around the globe.

Then it started to unravel. Crushed by repayments on debt that totaled around $86 billion at the end of 2017, HNA started shedding assets in early 2018 amid pressure from the government, which had started to crack down on the activities of its biggest offshore acquirers to rein in financial risk and damage to China's reputation.

The death of Chen's co-founder Wang Jian in a mysterious accident in France in 2018 cast a further pall over HNA, which had also begun reducing the investments in Hilton and Deutsche Bank that had thrust it into the limelight between 2016 and 2017.

HNA was pivoting back to its aviation and tourism roots when the coronavirus hit China early last year, with the shutdown in air travel accelerating the company's demise. As the pandemic hammered one of its last viable businesses, the government of Hainan seized control, appointing new leaders and assuming management of HNA's debts.

Luxury Properties

The group still has an assortment of assets, including its flagship Hainan Airlines Holding Co. Its non-aviation portfolio includes luxury properties and hotels in mainland China and overseas, such as the 648-foot skyscraper 245 Park Avenue in New York and part of an artificial island off Hainan in China called Pearl Island. HNA agreed to sell Ingram Micro Inc. for about $7.2 billion in December.

HNA's liabilities will be “greatly reduced” by the restructuring and it will continue to operate China's fourth-largest airline, a news agency run by the Civil Aviation Administration of China said late Friday. The group's listed companies will maintain their status on stock exchanges, it said.

The latest development comes a week after a government-appointed working group finalized a risk disposal plan and two senior executives, including Executive Chairman Gu Gang, resigned. On Jan. 27, a key Communist Party-led committee overseeing HNA left Chen off a list of members, raising doubts over his future at the group he founded and brought to the world stage.

©2021 Bloomberg L.P.