Be Insatiably Avaricious

2021-02-16   |   by CusiGO

“There is no greater disaster than greed,” Lao Tzu said. The suspicious existence of this Oriental sage can be traced back to the 4th century B.C. and he probably refers to the HNA Group. Once one of China’s most prosperous conglomerates, it is now on the verge of bankruptcy, unable to take on more than 700 billion yuan (90 billion euros) of debt, the result of ambitious global expansion over the past decade, which has led to a considerable share of giants such as Deutsche Bank. Bank or Hilton. He drew a hole from it. There was nothing but the hole. There was a plot of bad habits in the hole.

Haina’s glory belongs to another era. This is a short period. Since 2010, the Asian giant’s big company has ventured away from national boundaries to expand its financial scope. This is a debt based offensive, which will soon be suffocating. For example, Anbang, CEFC or Dalian Wanda are like this. The latter will buy and sell a part of Atletico Madrid, as the patrons of the Mets can attest.

HNA also entered Spain, holding 26% of NH Hotel Chain, and then transferred it to a small Thai Group for 424 million euros. The list of international companies he landed on included well-known names such as Radisson, virgin Australia, tap Air Portugal and Ingram micro, the largest acquisition of an American technology company by a Chinese company. But with the withdrawal in 2017.

The Chinese government was shocked by the rising debt and had to step on the brakes. As of July this year, HNA ranked 170th on the fortune list, ranking among the global top 500, with revenue of US $53 billion (44 billion euros), assets of 1.2 trillion yuan (150 billion euros), distributed in more than 2300 companies. The enterprise group has gone bankrupt.

After that, he began to pay for his miscalculation. According to the latest financial report released in the first half of 2019, the group is in debt of 706 billion yuan (91 billion euros), making its debt ratio reach 72.06%. According to data compiled by Dealogic, HNA currently owes us $27.5 billion (23 billion euros) in outstanding bonds and US $20 billion (16.7 billion euros) in loans. This situation may even be more urgent because it will also use other financial instruments, such as issuing short-term bonds, which makes it difficult to conduct a comprehensive assessment of its accounts.

HNA’s creditors have applied to start the creditor competition, which HNA admitted in a statement issued last week after receiving notice from a court in its province of Hainan. According to Chinese regulations, any bankrupt company has nine months to reach an agreement with the plaintiff. In the document, the group undertook to comply with the authorities’ instructions and to make progress in debt restructuring to “protect the legitimate rights of creditors” and “ensure the normal operation of its business”.

The environment is also bad for HNA. The group chose the worst time and gave up diversification, which is the root of its problems and returned to its original position. Hainan Airlines is the fourth largest airline in Asia, Hainan Airlines. The top three airlines are also Chinese airlines, with more than 13 airlines. However, due to the outbreak of the pandemic, the industry has dropped to the lowest level, and it is expected to take several years to recover to the previous level.

In February last year, the Hainan provincial government reached out and set up a working group to ensure the company’s survival. His first step is to discuss a debt restructuring plan that could include equity payments to creditors, the first of which is China Development Bank, and the intervention of new strategic investors. According to local media reports, the aim is to achieve stable growth and pay off all debts within five to eight years.

The deal could mean a weakening of the power of the big shareholders. According to data provided by HNA in July 2017, the two charities shared most of their titles. The US based Hainan Cihang Charity Foundation holds 29.5% of the shares, while another foundation with the same name and Hainan Cihang charity foundation hold 22.75%. The first group of individual shareholders were the group’s co founders, the late Wang Jian and Chen Feng, accounting for 14.98% each.

The latter was most responsible for the company, but the intervention of the authorities eventually led to his resignation. Last week, HNA reported on an update process at its top, through which Chen Shui Bian was removed from the group’s Party committee, a body with the same power as the board of directors. His successor, Gu Gang, head of the government working group, sparked rumors that the government would take over the conglomerate. Shortly after his appointment, Mr. Gu sent a letter to employees, in which Reuters agency said, “only through bankruptcy and restructuring can we be reborn.”.

Government oversight also helps expose bad practices. Three subsidiaries of HNA, HNA infrastructure investment group and China National Petroleum Corporation disclosed last week that their shareholders would misappropriate up to 61.5bn yuan (7.9bn euros). The identity of the perpetrators has not been released, but legal action is expected. After the scandal, the shares of the three companies fell nearly 10% in Shanghai and Shenzhen, the highest level allowed every day. HNA faces a dramatic ending because its start is ambitious: popular laws, no matter how old, usually don’t go wrong.