HONG KONG – Its borrowers are campaigning for bankruptcy. Its chairman and co-founder has been quietly deprived of power. Nearly $ 10 billion of his money has been embezzled.
HNA Group, the large Chinese conglomerate that has thrown tens of millions of dollars at trophy businesses around the world, is approaching the biggest corporate collapse in recent Chinese history. Its dismantling is an extraordinary turnaround for the company, which starts as a local airline in the southern province of Hainan in China and has a major stake in Hilton Hotels, Deutsche Bank, Virgin Australia and others. At its peak, HNA employed 400,000 people around the world.
For China’s leadership, HNA is now a warning. His story provides a glimpse into how Beijing treats its most powerful entrepreneurs. China is taking a stronger grip on the economy, and regulators have recently invaded another empire – that of China’s most famous billionaire, Jack Ma.
“It’s a stark reminder to China’s private sector and big business and executives that you’ve never been more important than the Communist Party,” said Jude Blanchette, a scientist in China at the Center for Strategic and International Studies in Washington, DC. said. “Joining the big business is not exactly central planning, but it is definitely putting in place cues for corporate behavior to make sure they are heading in the right direction.”
Pressure is mounting on companies whose behavior could pose a risk to China’s financial system. Xi Jinping, China’s top leader, said at a meeting of senior Communist Party officials in the country late last month that the government should anticipate and anticipate risks, even as it pursues growth. He urged officials to devise plans to deal with “gray rhino” events, citing major and clear problems in the economy that are being ignored until urgently threatened. Chinese media often referred to HNA as a gray rhino before HNA.
The party has strengthened its hand in private affairs over the past few months, encouraging entrepreneurs to “identify themselves politically, intellectually and emotionally”. It also undertook to avoid being called the “disorderly expansion of capital”, a reference to the kind of lavish spending of borrowed money for which HNA became famous.
Among the party’s recent notable targets is Chinese online retail giant Alibaba Group. In December, the authorities launched an antitrust investigation into the company, which was conducted by Mr. Ma is medestig is. A month earlier, a few days before a planned initial public offering of Mr. Mom’s financial giant, Ant Group, has urged regulators to stop it.
HNA was once the face of modern corporate China, a leader in the first wave of private Chinese companies with political support to make major global acquisitions. The tendency to upload borrowed money to buy interests in world names was costly and risky, and it was seemingly daring regulators in Beijing and around the world to hack it.
While HNA’s creditors are waiting for a Chinese court to approve their request for bankruptcy and restructuring, questions are being asked about the extent of the conglomerate’s problems. It has $ 200 billion in debt that it cannot pay off, and those who owe money will have to sift through dozens, possibly hundreds, of its subsidiaries, said Michelle Luo, a bankruptcy lawyer at the Hui Ye law firm.
The task became even more discouraging after three of HNA’s subsidiaries announced late last month that HNA shareholders and dozens of subsidiaries had embezzled nearly $ 10 billion in corporate funds to repay their own rising debt. HNA Group was one of dozens of shareholders and subsidiaries listed in the disclosures that allegedly embezzled money. Hainan Airlines, one of HNA’s subsidiaries, said some funds were taken to pay for wealth management products, but did not provide any specific details.
HNA’s insolvency is the largest China has seen since the country first launched its bankruptcy law in 2007, Me. Luo said. It will also test the strength of the law – only 76 listed companies have gone bankrupt in China.
Much of the restructuring of HNA is likely to take place behind closed doors and with great state involvement. Officials from China’s civil aviation administrator and China Development Bank, the country’s main policy bank, joined last year to take over the management of some of the company’s affairs, and two government officials joined the board.
The fate of Chen Feng, HNA’s chairman and co-founder, has been in doubt since he was removed from a list of members of the HNA’s Communist Party committee, the company’s most important decision-making body, according to an official announcement late last month. .
While building up HNA, Mr. Chen imprinted his corporate culture with his own personal interests as a Buddhist and calligrapher. A former pilot of the People’s Liberation Army, Mr. Chen, said he is different from other entrepreneurs. “I do not drink, smoke, hold banquets, go karaoke or massage,” he once told the South China Morning Post. He had the company’s headquarters built in Hainan to look like a Buddha.
For years, doors opened for the company. It was given cheap financing from China’s state – backed banks. Its executives had the kind of political commitments that private enterprises in China could only dream of.
During his first state visit to Britain, China’s top leader, Xi Jinping, performed for HNA’s Hainan Airlines at an event in Manchester. Mr. Chen was once an assistant to Wang Qishan, China’s vice president. Another HNA executive has entered into a partnership with the son of Wen Jiabao, the former prime minister of China, reports The New York Times in 2018.
HNA also has an influence abroad. One of his earliest supporters was billionaire investor George Soros. The executives mingled with Wall Street power brokers in black galas and met with leaders in Washington. They have concluded a business deal with the Jeb Bush administration. They tried to buy Skybridge Capital, an investment firm co-founded by Anthony Scaramucci, who at the time expected to become a link between the White House and the American business community. (The agreement was terminated after the companies realized that regulators would not approve it.)
But the heyday of HNA counted when authorities in China began investigating the enormous debt incurred by HNA and some of its politically affiliated counterparts such as Anbang Insurance Group, Fosun International and Dalian Wanda to promote their global shopping.
Authorities took control of Anbang, a troubled insurance conglomerate that owns the Waldorf Astoria hotel in New York, and its founder, Wu Xiaohui, was sentenced to 18 years in prison for fraud. Wanda, the one-time owner of AMC Entertainment, and Fosun, which owns Club Med and the luxury fashion house Lanvin, quickly sold some of their overseas acquisitions.
When HNA turned to his own growing account, he started dumping some of his companies. It also tried to lend money to its own employees by offering them high-interest investment products.
The Chinese government has not commented on the unraveling of HNA. The China Securities Regulatory Commission and the Hainan Supervision Bureau of the China Securities Regulatory Commission did not respond to a fax request for comment. HNA did not immediately respond to a request for comment.
The state-run news media in China sought to portray HNA’s bankruptcy proceedings as a measure aimed at protecting the company’s assets, rather than trying to strip them to the bare bones.
“The focus of bankruptcy and restructuring is not on ‘destruction’ but on ‘building’,” one commenter told the Shanghai Security News. It can also be seen as a ‘rebirth’. “
On Chinese social media, some customers of HNA’s airlines asked if their tickets would be repaid, while people who invested in its investment products complained that the company would repay the banks before returning money it had borrowed from ordinary people. Others said they were not surprised by the eventual fate of the company.
“Ultimately, HNA Group still failed,” Chen Haijian, a financial professional in Nanjing, wrote on his personal page on WeChat, a Chinese social media platform.
“It feels like people have been saying this sentence for over ten years.”
Cao Li reporting from Hong Kong.