HONG KONG – Your creditors are pushing for bankruptcy. Its president and co-founder was discreetly powerless. Almost $ 10 billion of its money was diverted.
The HNA Group, a vast Chinese conglomerate that has invested tens of billions of dollars in trophy companies worldwide, is approaching the biggest corporate meltdown in China’s recent history. Its dismantling is an extraordinary turnaround for the company, which started out as a regional airline in southern China’s Hainan province and has grown to own large stakes in Hilton, Deutsche Bank, Virgin Australia and others. At its peak, HNA employed 400,000 people worldwide.
For China’s leadership, HNA is now a cautionary tale. Its history offers a glimpse of how Beijing treats its most powerful entrepreneurs. China has taken a firmer grip on the economy and regulators have recently surrounded another empire – that of China’s most famous billionaire, Jack Ma.
“It is a strong reminder to China’s private sector and large companies and executives that you are never more important than the Communist Party,” said Jude Blanchette, a Chinese scholar at the Center for Strategic and International Studies in Washington. “The control of large corporations is not exactly central planning, but it is certainly putting barriers on corporate behavior to make sure they are going in the right direction.”
Pressure is mounting on companies whose behavior may pose a risk to China’s financial system. Xi Jinping, China’s top leader, said at a meeting with senior officials of the country’s Communist Party at the end of last month that the government must anticipate and anticipate risks, even as it seeks growth. He urged officials to make plans to deal with “gray rhino” events, referring to large and evident problems in the economy that are ignored until they become urgent threats. Chinese media always referred to HNA as a gray rhino before its decline.
The party has strengthened its hand in private business in recent months and has urged businesspeople to “identify politically, intellectually and emotionally” with its goals. He also pledged to avoid what he called “disorderly capital expansion,” a reference to the type of lavish borrowed money for which HNA became known.
Among the party’s recent high-profile targets is Chinese online shopping giant Alibaba Group. In December, authorities initiated an antitrust investigation into the company, which was co-founded by Mr. Ma. A month earlier, days before a planned initial public offering by Ma’s financial giant Ant Group, regulators stepped in to prevent -there.
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. His propensity to burden himself with borrowed money to buy stakes in global family names was costly and risky, apparently daring regulators in Beijing and around the world to put it into practice.
While HNA’s creditors wait for a Chinese court to approve its bankruptcy and restructuring application, questions are being raised about the scale of the conglomerate’s problems. She has $ 200 billion in debt she cannot pay, and those in debt will have to scour dozens, possibly hundreds, of her subsidiaries, said Michelle Luo, a bankruptcy attorney at Hui Ye law firm.
The task became even more difficult after three HNA subsidiaries revealed last month that HNA shareholders and dozens of subsidiaries had embezzled nearly $ 10 billion of corporate funds to pay off their own growing debts. The HNA Group was one of dozens of shareholders and subsidiaries listed in the disclosures that would have embezzled money. Hainan Airlines, one of HNA’s subsidiaries, said some funds were withdrawn to pay for wealth management products, but did not provide specific details.
HNA’s insolvency is the biggest that China has seen since the country started using its bankruptcy law in 2007, Ms. Luo said. It will also test the force of the law – only 76 listed companies have filed for bankruptcy in China.
Much of HNA’s restructuring is likely to take place behind closed doors and with strong State involvement. Employees of China’s civil aviation administrator and China Development Bank, the country’s main policy bank, stepped in last year to take over management of some of the company’s business, and two government officials joined the board of directors. .
The fate of Chen Feng, president and co-founder of HNA, has been in question since he was removed from a list of members of the HNA Communist Party committee, the company’s main decision-making body, according to a statement. official at the end of last month.
As he built the HNA, Mr. Chen impressed on his corporate culture his own personal interests as a Buddhist and calligrapher. A former pilot of the People’s Liberation Army, Chen said he was different from other businessmen. “I don’t drink, smoke, don’t feast, don’t go to 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. Received cheap financing from state-owned banks in China. Its executives had the kind of political connections that private companies in China could only dream of.
During his first state visit to Britain, China’s top leader, Xi Jinping, made an appearance at an event in Manchester for HNA’s Hainan Airlines. Mr. Chen was once an adviser to Wang Qishan, vice president of China. Another HNA executive has partnered with the son of Wen Jiabao, the former prime minister of China, reported The New York Times in 2018.
HNA also had an influence abroad. One of its first sponsors was George Soros, the billionaire investor. Its executives mingled with Wall Street brokers at gala parties and met with top leaders in Washington. They struck a commercial deal with Governor Jeb Bush. They tried to buy Skybridge Capital, an investment firm co-founded by Anthony Scaramucci, who at the time hoped to become a liaison between the White House and the United States business community. (The business was abandoned after companies realized that regulators would not approve it.)
But HNA’s glory days were numbered when authorities in China began examining the huge debt that HNA and some of its politically connected peers, such as Anbang Insurance Group, Fosun International and Dalian Wanda, were taking on to fuel their shopping spree. global.
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, who previously owned AMC Entertainment, and Fosun, owner of Club Med and the luxury fashion house Lanvin, quickly sold some of its acquisitions abroad.
As HNA turned to its own growing account, it began to part with some of its companies. It also sought to borrow money from its own employees, offering them high-interest investment products.
The Chinese government has not commented on the collapse of the HNA. The China Securities Regulatory Commission and the Hainan Supervision Bureau of 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 sought to portray HNA’s bankruptcy as a measure designed to protect the company’s assets, rather than an attempt to reduce it to the bone.
“The focus of bankruptcy and restructuring is not on ‘destroying’, but on ‘building’,” said a comment in Shanghai Security News. “It can also be seen as a ‘rebirth'”.
On Chinese social media, some customers of HNA airlines asked if their tickets would be reimbursed, while people who had invested in their investment products complained that the company would pay the banks before it could return the money borrowed from ordinary people. Others said they were not surprised by the company’s final destination.
“In the end, the HNA Group still went bankrupt,” wrote Chen Haijian, a finance professional in Nanjing, on his personal page on WeChat, a Chinese social media platform.
“It seems like people have been saying that phrase for over 10 years.”
Cao Li contributed with reports from Hong Kong.