HONG KONG – Lenders are pushing for bankruptcy. Its chairman and co-founder has been tacitly stripped of power. Almost $ 10 billion of his money was misappropriated.
HNA Group, the giant Chinese conglomerate that has thrown tens of billions of dollars in trophy deals around the world, is nearing the biggest corporate collapse in recent Chinese history. The downsizing is an extraordinary twist for the company, which began as a regional airline in southern China’s Hainan Province and owned large stakes in Hilton Hotels, Deutsche Bank, Virgin Australia, and others. At that time, HNA employed 400,000 people worldwide.
For China’s leadership, HNA is now a cautionary story. Its story offers a glimpse of how Beijing treats its most powerful entrepreneurs. China has got its economy tighter, and regulators recently conquered another empire – that of China’s most famous billionaire, Jack Ma.
“It is a sharp reminder to China’s private sector and big soaring corporations and executives that you are never more important than the Communist Party,” said Jude Blanchette, a China scholar at the Center for Strategic and International Studies in Washington. “Narrowing down large companies isn’t exactly central planning, but it certainly sets guidelines for how companies behave to make sure they’re going in the right direction.”
The pressure on companies whose behavior could pose a risk to the Chinese financial system is mounting. Xi Jinping, China’s leader, told a meeting of senior officials from the country’s Communist Party late last month that the government must foresee and anticipate risks even if it seeks growth. He urged officials to make plans to deal with the “gray rhino” events, highlighting major and obvious problems in the economy that are being ignored until they become urgent threats. Chinese media had often referred to HNA as a gray rhinoceros before its demise.
The party has strengthened its hand in private business in recent months and urged entrepreneurs to identify “politically, intellectually and emotionally” with their goals. It has also pledged to prevent something called “disorderly capital expansion,” an indication of the type of lavish spending on borrowed money that HNA had become known for.
The party’s recent high profile targets include Chinese online shopping giant Alibaba Group. In December, the authorities launched an antitrust investigation into the company Mr. Ma co-founded. A month earlier, days before a planned IPO of Mr. Ma’s financial giant Ant Group, regulators stepped in to stop this.
HNA was once the face of modern enterprise China, leading the first wave of private Chinese companies with political backing to make large global acquisitions. His propensity to fund borrowed money to buy shares in global famous names was expensive and risky, and seemed to dare regulators in Beijing and around the world to turn it upside down.
As HNA’s creditors wait for a Chinese court to approve their bankruptcy and reorganization petition, questions about the extent of the conglomerate’s problems arise. It has $ 200 billion in debt that it can’t pay off, and those owed money have to sift through dozens, possibly hundreds, of its subsidiaries, said Michelle Luo, a bankruptcy attorney at Hui Ye law firm.
The task became even more daunting when three of HNA’s subsidiaries announced late last month that HNA shareholders and dozen of subsidiaries had embezzled nearly $ 10 billion in corporate funds to repay their own debts. The HNA Group was one of dozens of shareholders and subsidiaries listed in the alleged allegedly money embezzled. Hainan Airlines, one of HNA’s subsidiaries, said some funds were used to pay for wealth management products but did not disclose specific details.
HNA’s bankruptcy is the largest China has seen since the country first implemented its bankruptcy law in 2007, Ms. Luo said. It will also test the strength of the law – only 76 publicly traded companies have gone through bankruptcy proceedings in China.
Much of HNA’s restructuring is likely to take place behind closed doors and with strong government involvement. Officials from China’s Civil Aviation Administrator and the China Development Bank, the country’s main political bank, took over management of some of the company’s affairs last year, and two government officials joined the board of directors.
The fate of Chen Feng, chairman and co-founder of HNA, has been in doubt since he was removed from a list of members of the HNA Communist Party Committee, the company’s main decision-making body, according to an official release late last month.
While building HNA, Mr. Chen shaped his corporate culture with his own personal interests as a Buddhist and calligrapher. Mr. Chen, a former People’s Liberation Army pilot, said he was different from other entrepreneurs. “I don’t drink, smoke, do banquets, go to karaoke or get massages,” he once told the South China Morning Post. He had the company headquarters in Hainan built to look like a Buddha.
For years, doors opened for the company. It was cheaply funded by China’s state-sponsored banks. The executives had the kind of political connections that private companies in China could only dream of.
On his first state visit to the UK, China’s top leader Xi Jinping performed at an event in Manchester for HNA’s Hainan Airlines. Mr. Chen was once an advisor to Wang Qishan, China’s vice president. Another HNA manager partnered with the son of Wen Jiabao, the former prime minister of China, the New York Times reported in 2018.
HNA also had an influence abroad. One of the earliest supporters was George Soros, the billionaire. Executives mingled with Wall Street power brokers at black-tie galas and met with leaders in Washington. You have a business deal with Governor Jeb Bush. They attempted to buy Skybridge Capital, an investment firm co-founded by Anthony Scaramucci who at the time expected to create a link between the White House and the US business community. (The deal was canceled after companies realized regulators weren’t going to approve it.)
But the glory days of HNA were numbered as the authorities in China began to question the enormous debt that HNA and some of its politically affiliated counterparts such as Anbang Insurance Group, Fosun International and Dalian Wanda took up to fuel their global shopping spree.
Authorities took control of Anbang, a troubled insurance conglomerate that owned the Waldorf Astoria Hotel in New York, and sentenced its founder, Wu Xiaohui, to 18 years in prison for fraud. Wanda, the former owner of AMC Entertainment, and Fosun, which owns Club Med and luxury fashion house Lanvin, quickly sold some of their overseas acquisitions.
As HNA turned to its own growing bill, it began to lose some of its businesses. She also tried to borrow money from her own employees by offering them high-yield investment products.
The Chinese government has not commented on the decryption of the HNA. The China Securities Regulatory Commission and the Hainan Supervision Bureau of the China Securities Regulatory Commission did not respond to a faxed request for comment. HNA did not immediately respond to requests for comment.
China’s state-controlled news media has tried to portray HNA’s bankruptcy process as a measure aimed at protecting the company’s assets rather than trying to get to the heart of them.
“The focus of bankruptcy and restructuring is not on ‘destruction’ but on ‘building’,” said a comment in Shanghai Security News. “It can also be seen as ‘rebirth’.”
On Chinese social media, some customers of HNA’s airlines asked if their tickets would be refunded, while people who had invested in its investment products complained that the company would repay the banks before returning any money it received from normal Had borrowed people. Others said they weren’t surprised at the company’s ultimate fate.
“In the end, the HNA Group still failed,” wrote Chen Haijian, a finance professional in Nanjing, on his personal page on WeChat, a Chinese social media platform.
“It feels like people have been saying this phrase for over 10 years.”
Cao Li contributed to the coverage from Hong Kong.