China's indebted HNA Group reports $10 billion embezzlements

Creditors have applied for the conglomerate to be placed in bankruptcy, while as many as 500 related companies could reportedly face collapse or restructuring

China's indebted HNA Group reports $10 billion embezzlements
Passengers board a Hainan Airlines jet at the airport in Qingdao, Shandong province. In 2018, Air China Group entered  preliminary talks with the deeply indebted HNA Group to purchase the airline. File photo by Reuters.

(ATF) Three units of the deeply indebted HNA Group said nearly $10 billion had been embezzled by shareholders in disclosures to stock exchanges as the once high-flying conglomerate teetered on the edge of collapse.

A total of 61.5 billion yuan ($9.57 billion) had been embezzled by shareholders and other related parties, Shanghai-listed Hainan Airlines, HNA Infrastructure Investment Group and Shenzhen-listed CCOOP Group, the ailing company said in stock exchange disclosures.

The identities of the shareholders were not disclosed in the statements.

Creditors have applied to a court for the conglomerate to be placed in bankruptcy and restructured. The government-appointed team examining its books expects as many as 500 companies linked to HNA Group to go into bankruptcy or restructuring, local media reported.

The conglomerate's collapse could have far-reaching consequences, analysts warned. "We see the bankruptcy having a negative impact on major airport names, including Beijing Capital International Airport," said Kelvin Lau of Daiwa Capital Markets in Hong Kong.

"On the other hand, we see potential merger and acquisition opportunities for the big three airlines, including Air China. "Back in 2018, Air China revealed that its parent company Air China Group was in preliminary talks with HNA Group to buy out its flagship airline Hainan Airlines," Lau said.

GROUNDED AMBITIONS

Some companies have already factored in HNA's likely demise, Lau said. "We expect this news to be neutral to TravelSky as it had already booked an impairment charge on the potential loss from transactions with airlines under the HNA Group. "

The move towards HNA's bankruptcy 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.

HNA was once one of China's most aggressive dealmaking firms. But its tens of billions of dollars in spending drew scrutiny from the Chinese government and overseas regulators.

As concerns grew over its mounting debts, it sold assets such as airport services company Swissport and electronics distributors Ingram Micro to focus on its airline and tourism business.

Ingram was sold to private equity group Platinum Equity for $7.2 billion, an acquisition expected to be completed by the first half of 2021, subject to shareholder and regulatory approvals.

HNA had 706.7 billion yuan in debt at the end of June 2019, the last bond report it made public that year showed. It has not given an update since. Its largest creditor is the state-backed China Development Bank, which also chairs the company's creditor committee.

With reporting by Reuters

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