China's HNA Group goes bankrupt, faces restructuring

(ATF) HNA Group, the debt-wracked Chinese conglomerate that has been battling a drawn-out debt crisis, has gone bankrupt and faces restructuring to resolve its financial status.

The group, which owns Hainan Airlines, one of China’s largest private aviation companies, said in a statement its creditors had applied to a court for bankruptcy and reorganisation.

HNA had assets of close to a trillion yuan (US$155 billion) three years ago, driven by its boss Chen Feng’s ambition to be a Fortune 100 company.

But in 2017, the Chinese government cracked down on HNA’s aggressive global expansion, forcing it to slim down its assets to focus on its airline and tourism businesses.

HNA held stakes in the Hilton hotel group and Deutsche Bank, and had investments spanning the aviation, tourism, real estate and financial services sectors as part of an acquisition binge.

But weighed down by billions of dollars of debt it has sunk ever lower as it tried to dispose of assets.

On Friday, HNA said it received a notice from the Hainan Provincial Higher People’s Court, saying that “creditors have applied to the court for bankruptcy and restructuring of (the) group as it could not pay off due debts”.

HNA said it would cooperate with the court in conducting a judicial review, push forth with debt disposal work, and support the court in protecting creditors’ rights.

The news came a week after HNA said a local government-led working group had laid out risk disposal plans.

HNA said risk disposal was “progressing smoothly” and that it was about to enter a “critical period”.

The group has stakes in several Chinese and international airlines. It also owns Hong Kong Airlines, which laid off hundreds of staff last year amid a steep drop in tourism due to impact of the 2019 protests and later the coronavirus.

Reorganization not liquidation

It should be noted that while bankruptcy reorganization is stipulated in the Enterprise Bankruptcy Law, the HNA case is not a bankruptcy liquidation. The Corporate Bankruptcy Law provides three statutory procedures – bankruptcy liquidation, bankruptcy reorganization and bankruptcy reconciliation. Although the latter two procedures are all titled “bankruptcy”, they have nothing to do with liquidation.

For a bankrupt and reorganized enterprise, the corporate legal status will not be cancelled and will continue to exist. The move is not to close the company and withdraw from the market, but to implement a comprehensive reorganization of debt, assets, business, equity, and management of the debtor’s enterprise.

The solution proposed aims to improve its corporate governance structure and resolve the company’s debt burden, so its corporate legal status will continue, while it can unload debts and ‘go lightly’ to achieve a rescue and rebirth of the company. Therefore, the plan is “reorganization and rebirth.”

With reporting by AFP. This report was updated on January 30.