HNA Units Make Plans to Claw Back $17 Billion in Misused Funds

(Bloomberg) -- Three listed units of China’s indebted HNA Group Co. announced plans to recoup at least 112 billion yuan ($17 billion) of misused funds, undisclosed debt guarantees and questionable investments by its major shareholders and their affiliates.

Flagship Hainan Airlines Holding Co. will ask its parent to repay part of its debt while two other group firms are paring the stake held by their controlling shareholders. The carrier will transfer interest-bearing debts of at least 72.5 billion yuan to HNA and HNA Aviation Group Co., holding them responsible for the wrongdoings, according to a Feb. 9 exchange filing. The plan has been endorsed by the majority of its creditors, the filing said.

HNA Infrastructure Investment Group Co. and CCOOP Group Co. will convert a part of their capital reserves into new shares and then ask the controlling shareholders and their related firms to surrender these shares, the two companies said in their respective exchange filings Tuesday. They didn’t provide details of their communications with debtors.

The clawback plan comes nearly two weeks after the three companies disclosed misappropriation of funds by some of its shareholders and related entities, deepening the woes of the once high-flying Chinese conglomerate whose global acquisition spree left it with a crushing debt load. The revelations have raised concerns that this would scare away any possible suitors and restructuring plans presented to courts may not be approved.

Hainan Airlines jumped as much as 9% on Wednesday morning while CCOOP rose as much as 2%. HNA Infrastructure fell as much as 3%.

Tuesday’s announcements signal that the tumultuous saga of HNA is in its final chapter. Founded as an airline in the 1990s by entrepreneur Chen Feng with seed money from George Soros, the company emerged from near obscurity to mount a buying binge that saw it become the top shareholder of Deutsche Bank AG and Hilton Worldwide Holdings Inc.

Plowing more than $40 billion into everything from golf courses to landmark hotels across six continents, it was the poster child for a cabal of Chinese empire builders that borrowed rapidly to buy up trophy assets around the globe.

Shedding Assets

Then it started to unravel. HNA was saddled with a total debt of about $86 billion by the end of 2017. It started shedding assets in early 2018 amid pressure from the government, which had started to crack down on the activities of its biggest offshore acquirers to rein in financial risk and damage to China’s reputation. In December, HNA agreed to sell Ingram Micro Inc. for about $7.2 billion, its biggest yet.

Under HNA’s restructuring proposal, the government of island province of Hainan -- which effectively took control of HNA last February after the pandemic pushed its aviation business to the brink -- plans to dispose of the non-aviation assets through a trust, people familiar with the plan told Bloomberg last month.

A state-backed entity will become a strategic investor in what’s left of HNA, and creditors will be allowed to swap their debt into equity in the new, stripped company or gain a stake in the trust managing the divestment of the other assets, depending on their lender status, the people said.

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