HNA Units Say $10 Billion in Funds Misused by Shareholders

Three listed companies of China’s HNA Group Co. said shareholders and affiliates misappropriated at least 63 billion yuan ($9.8 billion) of funds, deepening the woes of the indebted conglomerate that’s set to be restructured.

Hainan Airlines Holding Co., HNA Infrastructure Investment Group Co. and CCOOP Group Co. also reported they have failed to disclose about 46 billion yuan in debt guarantees, according to separate filings to the Shanghai and Shenzhen stock exchanges on Jan. 30. The companies said they found the alleged wrongdoings after “self-investigation.” Shares of some of the group firms fell almost by their daily limit on the mainland exchanges on Monday.

Funds from wealth management products and loans were misused, while some shareholders and affiliates used company property or funds to repay their own debt, according to the statements. The three companies are in talks with the parties and actively seeking solutions, they said, without elaborating. Should the misdeeds remain unsolved, courts may not approve any restructuring applications, and even if a reorganization proceeds, there’s a risk of bankruptcy, they warned.

The revelations, coming a day after creditors approached a court to reorganize the group following its failure to repay debt, further highlight the troubles faced by the once high-flying conglomerate. Regulators in China have approved a restructuring plan for the group, people familiar with the plan told Bloomberg News last week. HNA said Jan. 29 that it will cooperate with the court and “actively promote” the disposal of its debt pile, which at one point was among the largest in the world.

Under the restructuring proposal, the government of China’s Hainan island-province -- which effectively took control of HNA last February after the pandemic pushed its aviation business to the brink -- plans to dispose of the group’s non-aviation assets through a trust, the people said last week, 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, stripped company or gain a stake in the trust managing the divestment of the other assets, depending on their lender status, the people said.

At least 60 HNA units have received similar court-led restructuring requests from creditors, according to exchange filings. They include HNA Capital Group Co., HNA Retailing Holding Co., HNA Infrastructure, Hainan Airlines and CCOOP.

HNA Technology Co. fell 9.8% in Shanghai on Monday, the most in almost five months; CCOOP dropped 9.9% in Shenzhen, the most in more than six months, and Hainan Airlines, listed in Shanghai, plunged 9.8%, the biggest decline in a year. HNA Infrastructure slumped as much as 8.9% before paring almost all of the losses by the end of trading.

Asset Sales

After an acquisition binge in the middle of last decade that included stakes in marquee assets such as Deutsche Bank AG and Hilton Worldwide Holdings Inc., HNA was left with a total debt of about $86 billion by the end of 2017. Pressure from the government, which cracked down on the activities of China’s biggest offshore acquirers to rein in financial risk, forced HNA to start shedding its holdings in early 2018. In December, HNA agreed to sell Ingram Micro Inc. for about $7.2 billion, its biggest yet.

The group still has an assortment of assets, including its flagship Hainan Airlines, which said Sunday it’s expecting a net loss of between 58 billion yuan and 65 billion yuan for the year through December, versus a profit of 543.2 million yuan in 2019. Separately, HNA Infrastructure warned of an expected loss of between 5.9 billion yuan and 8 billion yuan for last year, widening from 1.2 billion yuan in 2019.

The conglomerate’s 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 was founded as an airline in the 1990s by entrepreneur Chen Feng and his partner Wang Jian. Wang died in 2018 in a mysterious accident in France. Months after his death, French daily Liberation reported in early 2019 that Wang committed suicide, citing a witness.

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