HNA collapse fuels China’s rising corporate debt fears

Bankruptcy looms large for the group that went on a global spending spree

HNA Group had ambitions of being a global powerhouse after going on a massive spending spree. But now, the Chinese conglomerate is buried beneath a mountain of debt.

On Monday, HNA disclosed that its creditors had applied for bankruptcy and that nearly US$10 billion had been allegedly embezzled by shareholders of its three divisions of the company, the Reuters news agency reported.

The decision illustrates the debt problem stalking China’s corporate sector and came as the Hainan government tried to restructure the group.

“We will strictly supervise the delisting of companies linked to HNA and encourage them to expand multiple exiting methods, such as reforms, reorganizing the enterprise, and taking the initiative to leave the market,” Yi Huiman, the head of the Chinese Securities Regulatory Commission, said.

The facts:

  • HNA Group had total assets worth 980.62 billion yuan or US$151.77 billion as of June 2019, financial news site stated.
  • Gross liabilities were 706.73 billion yuan or $109.38 billion during the same period.
  • The company’s flagship business is Hainan Airlines.
  • HNA built a worldwide empire on debt, investing up to $50 billion in global brands such Deutsche Bank, Swissport and Hilton Worldwide.
  • By the end of 2017, HNA’s assets topped 1.2 trillion yuan or $186 billion.
  • A year later, co-founder and chairman Jian Wang died in a fall during a business trip to France.

What was said: “We’ve been fumbling in a pitch-black tunnel for three years. Through our work in the past year, we can finally see the light at the end of the tunnel [with bankruptcy restructuring],” Gu Gang, the head of a committee sifting through an estimated $77.8 billion of debt, wrote in a letter to 100,000 staff as reported by the South China Morning Post.

Reaction to the news: “Fundamentally, [there is] a bigger but very old story at play – if you expand your business by borrowing money … you better have the money to pay for all this,” Fraser Howie, an independent commentator and author of books about China’s financial system, told Reuters.

China Factor comment: Beijing allowed conglomerates, such as HNA Group, to spread their wings globally in a splurge of debt-fuelled investments. Now, the party is over. As Howie concluded: “Every one of them has been dismembered, dismantled and restricted to varying degrees. That type of company is gone and [is] not coming back.”