Debt-plagued HNA flies high with state rescue in the air

Top News | 21 Feb 2020

China plans to take over indebted conglomerate HNA Group and sell off its airline assets, the most dramatic step to date by the state to contain the economic damage caused by the Covid-19 outbreak.

Hainan, where HNA is based, is in talks to seize control of the group after the contagion hurt its ability to meet financial obligations, according to insiders.

As President Xi Jinping seeks to prevent the short-term economic pain from turning into a slump, his government is considering direct cash infusions or mergers to stabilize the airline industry, while the People's Bank of China said it will work on supporting domestic consumption. A takeover of a high-profile company like HNA could see those efforts reach a new level.

An announcement could be made by Thursday, though talks could drag on or fall apart, the insiders said. Under the emerging plan, China would sell the bulk of HNA's airline assets to its three biggest carriers - Air China, China Southern and China Eastern.

HNA-backed Suparna Airlines is also likely to be unloaded to Jiangsu. Discussions with the airlines are continuing, they said.

HNA has been cutting down after a US$40 billion (HK$312 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.

But its focus on aviation and tourism backfired as the epidemic led to an unprecedented drop in flights in and out of China.

"HNA is, even by Chinese standards, a sprawling and indebted conglomerate, and the collapse in Chinese airline activity due to the outbreak has apparently pushed it to effective bankruptcy," London-based Agency Partners analysts led by Nick Cunningham wrote in a note.

HNA-related shares jumped. Flagship Hainan Airlines Holding surged by the 10 percent limit in Shanghai trading yesterday, while HNA Technology Investments Holdings soared as much as 75 percent in Hong Kong. An HNA bond climbed the most in more than two years.

HNA has for years been struggling with debts. Its total debt fell to 525.6 billion yuan (HK$582.4 billion) as of mid-2019, 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.


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