China plans to take over indebted conglomerate HNA Group Co (海航集團) and sell off its airline assets, the most dramatic step to date by the state to contain the deepening economic damage from the COVID-19 outbreak.
The government of Hainan, the southern island province where HNA is based, is in talks to seize control of the group after the contagion hurt its ability to meet financial obligations, people familiar with the plans said.
The once little-known airline operator shot to prominence between 2016 and 2017 after a debt-fueled acquisition spree saw it become the leading shareholder of iconic companies such as Hilton Worldwide Holdings Inc and Deutsche Bank AG, while paying top dollar for properties in locations from Manhattan to Hong Kong.
An announcement could be made as soon as yesterday, though talks could drag on or fall apart, the people said, asking not to be identified as the discussions are confidential.
Under the emerging plan, China would sell the bulk of HNA’s airline assets to the country’s three biggest carriers — Air China Ltd (中國國際航空), China Southern Airlines Co (中國南方航空) and China Eastern Airlines Corp (中國東方航空), the people said.
It would also likely unload HNA-backed Suparna Airlines (金鵬航空) to the Jiangsu provincial government, the people said. Discussions with the airlines are continuing, they added.
A representative for HNA declined to comment. Calls and messages to Hainan government officials and press officers at the three state-run airlines were not returned.
Suparna representatives were not reachable and the Jiangsu provincial government did not immediately respond to an e-mailed query.
HNA has been slimming down after a US$40 billion buying binge left it with one of the highest levels of corporate debt in China.
In the past year, the group has been returning to its aviation roots, culminating in a November announcement to divide its businesses into airlines, aviation leasing and airports, with the rest being lumped under its “non-aviation asset management” unit.
However, its focus on aviation and tourism backfired as the COVID-19 outbreak led to an unprecedented drop in flights in and out of China.
HNA has for years struggled with debts that once climbed to nearly 600 billion yuan (US$85.43 billion), as well as soaring borrowing costs.
Although its total debt fell to 525.6 billion yuan as of the middle of last year, its cash pile shrank at a much faster pace, to 50.4 billion yuan, the smallest amount based on semiannual figures stretching back to 2015.
HNA chairman Chen Feng (陳峰) closed last year by predicting that this year would be “the decisive year to win the war” against the conglomerate’s long-running liquidity challenges.
“HNA is, even by Chinese standards, a sprawling and indebted conglomerate, and the collapse in Chinese airline activity due to the outbreak of COVID-19 has apparently pushed it to effective bankruptcy,” London-based Agency Partners analysts led by Nick Cunningham wrote in a note.
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