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 buying spree drew questions from regulators about the group’s opaque ownership structure and its struggle to manage spiraling debt. That prompted an equally dramatic selling spree, and Chinese authorities eventually took effective control. Now, HNA is undergoing an aggressive debt restructuring that will see its original shareholders exit the picture. And in another twist, its Chairman Chen Feng and Chief Executive Officer Tan Xiangdong, also known as Adam Tan, were detained in September on unspecified charges.
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 -- including the now similarly over-extended China Evergrande Group -- 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. Twelve company officials, including founders Chen Feng and Wang Jian, the company’s No. 2 who died in 2018, together held most of the remainder. 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 sold its shareholdings in Deutsche Bank and the Hilton assets. In December 2020, it offloaded Ingram Micro Inc. in its biggest asset sale for $7.2 billion. A renewed focus at HNA on aviation proved to be ill-timed with the Covid-19 pandemic dealing a devastating blow to the industry worldwide, accelerating the group’s collapse.
5. What happens now?
The government of China’s southern province of Hainan, where HNA is based, effectively took control of the group in February 2020. The group has filed for debt restructuring, facing at least $63 billion in creditor claims, and aims to get court approval by the end of October. It plans to bring in the private Chinese conglomerate Liaoning Fangda Group Industrial Co. as a strategic investor for its airline business, and state-owned Hainan Development Holdings Co. for the airport unit. The company said its operations and restructuring plans were unaffected by the detention of the two executives. Gu Gang, who heads the government workforce on HNA’s management, has said the old shareholders will no longer hold any interest in HNA or its affiliates. If the restructuring is successful, he said the group will be divided into four independent units comprising airline assets, airport assets, financial services and commercial and other businesses, each led by new controlling shareholders.
The Reference Shelf
- More from Bloomberg News on Chen Feng’s downfall and Guan Jun, HNA’s mystery man.
- QuickTakes on how Evergrande got in trouble, and how defaults are reshaping China’s credit market.
- Bloomberg Opinion’s Shuli Ren on how Evergrande might be worse than HNA.
- Read Bloomberg Businessweek’s 2017 cover story on HNA: The Conglomerate That Troubles China.
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