Reporters : Guo Fang, Sun Tingyang / Publisher : China Economic Weekly / http://www.minhangshi.com/m/h5/detail/9150043 / Direct translation
63 companies under HNA Group have been filed for bankruptcy and reorganization. The amount of capital occupied by major shareholders and related parties and undisclosed guarantees is staggering!
At this point, the overall risk reduction of the trillion-level group HNA will proceed in accordance with the essence of bankruptcy and reorganization.
At night of 29 January, HNA Group issued a statement stating that it had received a "Notice" issued by the Hainan Provincial Higher People's Court. The main content was that the relevant creditors applied to the court for bankruptcy and reorganization of our group because the group was unable to pay off due debts.
Subsequently, in the early morning of 30 January, HNA's three listed companies HNA Foundation, HNA Holdings, and Supply and Marketing Departments respectively issued reminder announcements.
HNA Foundation announced that the parent company has been reorganized by creditors. Twenty subsidiaries including International Tourism Island, HNA Airport Holdings, and Sanya Phoenix Airport were filed for bankruptcy and reorganization at the same time.
HNA Holdings announced that because the company was unable to pay off its due debts and apparently lacked solvency, creditors had filed an application for reorganization. Ten subsidiaries including China Xinhua Airlines, Air Changan and Shanxi Airlines were filed for bankruptcy and reorganization at the same time.
According to the announcement of the Supply and Marketing Department, the creditor applied to the court for reorganization on the grounds that the company was unable to repay the debts due and apparently lacked solvency. 24 subsidiaries including Baoji Shopping Center and Xi'an Minsheng were also filed for bankruptcy and reorganization.
Grand China Airlines, HNA Commercial Control, HNA Industrial, HNA Capital, and Basic Holdings also filed for bankruptcy and reorganization. In other words, including HNA Group, at least 63 companies in the HNA Department have been filed for bankruptcy and reorganization at the same time.
At the same time, the three listed companies also announced the occupation of funds by major shareholders and their affiliates, and the amount of undisclosed guarantees.
If finally accepted by the court, this will undoubtedly be the largest bankruptcy reorganization case in the history of Chinese corporate bankruptcy and even in the history of China's economy.
HNA’s liquidity crisis has lasted for nearly three years. Even though there is much speculation in the market, this result is still beyond everyone's imagination. Even the HNA Group Joint Working Group (hereinafter referred to as the Joint Working Group) may not have expected it when it moved in.
According to HNA, this is a plan that can best protect the interests of all parties. After the HNA Group enters the bankruptcy reorganization process, it will reduce its debt level through various methods such as debt transfer, stock repayment, and repayment of retained debt, which can protect the interests of investors to the greatest extent; introduce new strategic investors to bring new development to the company With the financial support of the company, the company can accelerate its return to the track of healthy development; adopt the strategy of "time for space" to give the company a certain amount of development time, and the value of equity will be further enhanced.
Liu Yanling, a well-known domestic bankruptcy lawyer and partner of Beijing King & Wood Mallesons, said: Bankruptcy reorganization is not the same as bankruptcy liquidation. The ultimate goal of bankruptcy and reorganization is to save the troubled company through the reorganization of debt, assets, equity, management, etc., to give the company opportunities and rebirth, and to achieve a win-win situation for the company and creditors.
HNA figured out debt for the first time in history
On the eve of the announcement of bankruptcy and reorganization, Gu Gang, the leader of the joint working group, sent an affectionate internal letter to all HNA employees. He said in an internal letter, "I know that as soon as the announcement of the group's bankruptcy and reorganization is released, the entire group will once again be caught in a whirlpool of public opinion and become the focus. Naturally, many people will be sad and anxious."
A week ago, on 22 January, HNA Group issued an announcement stating that the joint working group has completed due diligence work and formulated risk management ideas and plans in accordance with the principle of "rule of law and marketization", and positive progress has been made in all work.
It now appears that this is a preview. After that, Gu Gang continued to signal the market.
On the night of the announcement on January 22, Gu Gang said that HNA's risk management is about to enter a critical period. Positive progress has been made in various tasks, but it is still facing huge difficulties, pressures and challenges.
On 25 January, he once again emphasized that HNA's overall risk management plan is gradually being implemented, but risks must still be faced squarely. Everyone must have the confidence to overcome risks and not be blindly optimistic.
Gu Gang said frankly in his internal letter, “The past year has been really difficult. Many of us have never imagined that an epidemic that has not been encountered in a century will affect us so severely. But in fact, many people don’t know, even if not. This time the epidemic, it will be difficult for us to continue."
According to an insider close to the working group, “when it first moved in, the joint working group never expected to go to the bankruptcy and reorganization step. Because they were told that the situation was not so serious.”
However, the real situation is far from this.
According to an insider of the HNA Group, “before the joint working group came in, it was really about to collapse. At that time, the joint working group leader Gu Gang and the deputy team leader Ren Tsinghua entered the board of directors, which was also the result of the request of shareholders.”
Before the joint working group entered, no one knew the real assets and liabilities of the huge and complex HNA system.
An important task of the joint working group since its arrival on February 29, 2020 is to find out. It spent several months checking the assets, liabilities, and related transactions of HNA Group and its more than 2,000 companies, and clarified the assets of the entire group. Base number, management structure, equity relationship and creditor's rights relationship.
Ren Qinghua, deputy leader of the joint working group, sent to Gu Gang a brand new complete version of the tree diagram of the equity relationship of several listed companies and group companies, each of which is nearly three meters long. She said: "Team leader, look at the picture of Shanghe on Qingming Festival."
An insider of HNA told a reporter from China Economic Weekly, “This is the first time in HNA’s history that it has figured out the asset base, management structure, equity and creditor’s rights of the entire group.”
The bottom line is: serious insolvency.
"The gap between assets and liabilities is huge, and it is no longer a problem that can be solved by selling assets." According to a relevant person in the working group, the debt data after detailed investigation is data that has been certified by multiple parties and is also data that can withstand historical testing. .
But on the other hand, HNA has high salvage value including asset value, brand value, and service value.
Finally, all parties reached a consensus on bankruptcy and reorganization.
The bankruptcy reorganization plan is also based on the joint working group to find out the base of HNA.
The HNA Group stated that the joint working group then proceeded to formulate a bankruptcy reorganization plan based on the overall debt risk situation of the HNA Group. Due to the complicated structure of HNA Group’s equity, assets, claims and debts, in order to protect the interests of all parties to the greatest possible extent, HNA Group’s overall risk mitigation plan was formed after multiple rounds of negotiations.
According to informed sources close to the working group, this plan has passed through nearly 300 creditor institutions, held more than 30 large meetings and countless small meetings for consultations and games, collected hundreds of opinions, and obtained 80% of the claims. Institutional support. The relevant leaders of Hainan Province and the regulatory authorities have also listened to the report many times. In the process, there have been fierce disputes and big differences. The currently formed plan is considered to be a solution to ensure the maximization of the interests of all creditors and a result acceptable to many parties.
It is reported that before the announcement of the plan, 280 creditor institutions have been notified in advance, and "most creditors are basically able to accept the plan."
Gu Gang said in an internal letter: "We have gone through countless deductions and quarrels, and have survived countless nights. We have received support from many institutions and contributed wisdom. Only through bankruptcy and reorganization can we usher in a new life."
One transfer order can mobilize all company funds at will
Perhaps the most unexpected thing for the joint working group is the illegal occupation of the funds of the three listed companies.
The three listed companies of HNA Foundation, HNA Holdings, and Supply and Marketing Department have all issued the "Announcement on the Special Self-Inspection Report on the Governance of Listed Companies", which details the occupation of non-operating funds by major shareholders and related parties and undisclosed guarantees. .
According to the statistics of the announcement, the amount involved in illegal occupation of funds by major shareholders and related parties and undisclosed guarantees is huge.
HNA Holdings alone occupied 37.5 billion yuan of funds, of which 9.6 billion yuan was borrowed by related parties, and 13.87 billion yuan was actually used by related parties. The funds formed by providing guarantees for related parties were deducted 8.67 billion yuan and collected by related parties. A sum of 5.08 billion yuan was used to help major shareholders to redeem 820 million yuan in wealth management for employees; the final capital of 13.7 billion yuan of wealth management products purchased by the subsidiary of Supply and Marketing Department was borrowed by the controlling shareholder or its related parties, and the subsidiary provided guarantees for the controlling shareholder or its related parties As a result, funds were deducted 5.3 billion yuan; HNA’s foundation was occupied by related parties’ non-operating funds of 5.57 billion yuan.
For the large number of small and medium shareholders involved in the three listed companies that have been filed for bankruptcy and reorganization, the risk of delisting and liquidation cannot be estimated. The current bankruptcy reorganization plan is considered by the joint working group to protect the interests of shareholders to the greatest extent. In the plan, debt levels of listed companies are reduced by transferring debts of listed companies to major shareholders for repayment, as well as through various methods such as equity repayment, retention debt repayment, and trust share repayment to protect the interests of small and medium shareholders.
According to relevant estimates, the debt transfer will be completed in 2021.
Judging from the announcement, a considerable part of the funds occupied came from bank loans, and these funds were mainly used by major shareholders and related parties to conduct aggressive mergers and acquisitions in the global market.
A reporter from China Economic Weekly was informed that in the period of less than three years from the beginning of 2015 to the end of 2017, HNA's M&A investment scale was close to US$50 billion.
This series of acquisitions reached its peak in 2016. HNA’s largest transactions occurred in this year, including: US$10 billion acquisition of CIT Group’s aircraft leasing business, US$6 billion acquisition of American electronics distributor Ingram Micro, 65 100 million U.S. dollars from the Blackstone Group to acquire about 25% of the Hilton Group shares become its largest shareholder. In 2017, HNA became the largest shareholder of Deutsche Bank.
These targets were relatively high-quality assets at the time. The founder of HNA had hoped to be among the world's top 500 through mergers and acquisitions.
In this dazzling series of mergers and acquisitions, HNA’s ultra-high skills have reached the point of proficiency, and its nesting structure of equity for mergers and acquisitions is extremely complicated.
All along, within the HNA Group, there has been strict hierarchical stratification and a high degree of centralization. A HNA insider analyzed that the high degree of centralized management has led to the opacity of asset flow. Although each company is an independent entity, it is impossible to maintain independence in management. "One person can mobilize the funds of all the companies at will. There is no firewall."
This ultimately led to the huge appropriation of listed company funds by major shareholders.
Gu Gang said in an internal letter: "When the weekly meeting is held, I think of the hard work of the week, the big pits dug by the barbaric growth in the past, and the roughness of many of our past decisions. If I study the assets that have been destroyed by others using commercial terms, I will be full of anger and dissatisfaction. How did such a good group come to this day?"
This may be the question and regret of many people.
Old shareholders will be completely out
According to legal procedures, if accepted by the court, HNA Group will officially enter the bankruptcy reorganization process. The administrator will take over the enterprise and supervise the debtor’s funds and property.
Once the debtor enterprise enters the bankruptcy procedure, it means that the company's property can no longer pay off all its debts. The creditor becomes the debtor’s shareholder, or sells the rights and interests of the old shareholders to the strategic investor. The strategic investor provides funds to repay the debt to the creditor to protect the interests of the creditor to the greatest extent.
HNA Group stated that entering the bankruptcy reorganization process is mainly to solve the creditor's rights and debt issues in accordance with the rule of law and marketization principles, and will not affect the normal production and operation of its main aviation business. After the reorganization is completed, the main aviation business will achieve "light equipment". , Truly "focus on the main business and healthy development."
Public information shows that HNA Group has 14 participating airlines and a commercial fleet of nearly 700, making it the fourth largest aviation group in China. According to the Civil Aviation Industry Development Statistical Bulletin 2019 issued by the Civil Aviation Administration in 2020, in terms of the total transportation turnover in 2019, the proportions from high to low are China Southern Airlines Group 25.2%, AVIC Group 24.6%, China Eastern Airlines Group 19.5%, HNA Group 15.6%, other airlines 15.1%.
According to "China Economic Weekly", some strategic investors have shown strong willingness to HNA. Once the court accepts it, it will begin to introduce strategic investment, and will mainly introduce private capital to continue to maintain the background of HNA's private airline.
After that, the old shareholders of HNA Group will be completely eliminated.
According to the joint working group’s risk resolution vision: After the reorganization is completed, HNA Group’s liabilities will be greatly reduced, the operating burden will be significantly reduced, and the management system will be further optimized; with the injection of incremental resources, the air transportation market will gradually pick up and the market economy The environment is gradually improving. HNA Group will resume its sustainable operation and profitability, and continue to maintain the fourth largest airline in the country with HNA Holdings as its core; listed companies in the HNA Group system will continue to maintain their listing qualifications to eliminate potential major shocks to the capital market , The interests of all small and medium shareholders are protected, and more valuable returns are expected in the future; the claims of all creditors are properly arranged to avoid the transmission and spread of debt risks, effectively prevent financial risks, and creditors can also obtain shares and trust shares through debt repayment Continue to enjoy the dividends of the development of HNA Group after the reorganization.
"The plan we worked so hard to formulate is not for bankruptcy, but for reorganization. All our suffering, all efforts, there is only one direction, and that is the success of reorganization. Even if our plan is passed, I know that many people still Full of doubts and doubts, because HNA has too many problems, the plan under this situation is too big, too complicated, and too difficult to operate." Gu Gang said in an internal letter: He is still full of the next step of work. Be confident and believe that this plan will definitely be able to land.
In recent years of bankruptcy and reorganization cases, large enterprises such as Northeast Special Steel, Bogang Group, Chongqing Lifan, Qinghai Salt Lake, etc. have adopted bankruptcy and reorganization systems to optimize asset structure, introduce incremental resources, guarantee debt repayment, stabilize production and operation, and successfully avoid business closure for liquidation.
Let's hope HNA is no exception.
UPDATES 03/02/2021
HNA subsidiary reveals 63 billion "asshole" alleged shareholders embezzled funds
Reporter : Tang Di / Editor: Xiaohui / https://www.ntdtv.com/gb/2021/02/02/a103045471.html / Direct translation
After China HNA Group was filed for bankruptcy and reorganization by creditors, the bond trading methods of the group and its subsidiaries were restricted. A few days ago, a subsidiary of HNA suddenly disclosed that the parent company’s financial "mistakes", shareholders and related parties occupied 63 billion yuan (RMB, the same below). The outside world believes that HNA's internal struggle is an external manifestation of the internal struggle of the core of the Chinese Communist Party's power.
HNA Group, a large enterprise with official background of the Chinese Communist Party, issued a statement last weekend announcing that it had been sued by creditors to the court for bankruptcy and reorganization. On Monday (1 February), HNA Holdings, an A-share listed company under the HNA Group, issued an announcement on the Shanghai Stock Exchange stating that with immediate effect, the trading method of the company’s six bonds listed on the Shanghai Stock Exchange will be adjusted to only in Shanghai fixed-income securities. The electronic platform adopts the methods of quotation, inquiry and agreement transaction, and CSDC provides full settlement on a case-by-case basis.
At the same time, HNA Aviation Group also issued an announcement on the Shenzhen Stock Exchange, announcing that the trading method of its two bonds will be adjusted to only adopt negotiated block transactions. In other words, the bond trading methods of HNA's subsidiaries have excluded individual investors.
On the same day, the three listed companies under the HNA Group-HNA Holdings, HNA Foundation and Supply and Marketing Daji, issued the "Announcement on the Special Self-Inspection Report on the Governance of Listed Companies" on the exchange. According to the announcement, during the recent self-examination process, it was found that the financial management of the parent company was extremely chaotic, with major shareholders and related parties occupying 63 billion yuan of non-operating funds without the approval of the board of directors.
Take HNA Holdings, which is mainly engaged in aviation business, as an example. It disclosed in the announcement: The company has 9.567 billion yuan of funds borrowed by related parties; 13.875 billion yuan of loans are occupied by related parties; due to the provision of guarantees to related parties, 8.678 billion yuan of funds Deducted; 5.086 billion yuan of receivables was collected by related parties. Even HNA Group employees’ 820 million yuan wealth management products were redeemed by HNA Holdings. The company's total amount occupied by the head office and related parties amounted to 38.026 billion yuan.
HNA Holdings also issued a warning, saying that the company's loss is expected to be as high as 65 billion yuan, which set a new record for A shares.
In addition, the aforementioned three HNA subsidiaries also disclosed in the announcement: Without the approval of the company’s board of directors and the general meeting of shareholders, HNA’s shareholders and related parties provide debt guarantees in the name of the company, and these undisclosed debt guarantees involve a large amount Up to 46 billion yuan.
The three subsidiaries emphasized in the announcement that if the above issues are not resolved, the court may not accept the reorganization application; even if the application is accepted, the company still has the risk of being declared bankrupt due to the failure of the reorganization.
Hong Kong's newspaper Ming Pao reported that, judging from the self-examination reports issued by HNA Holdings, HNA Foundation and Supply and Marketing Daji, "HNA Group almost treats listed companies as cash machines."
In addition to the announcements issued by the above three subsidiaries, the Chinese Communist Party’s official media China Economic Weekly also quoted sources’ revelations that HNA Group’s “major shareholders” and their “affiliated companies” occupied funds, and the amount of undisclosed guarantee amounted to more than 100 billion Dollars.
However, the outside world has noticed that neither the relevant announcements of the three HNA subsidiaries nor the CCP’s official media have mentioned the names and relevant details of the “major shareholders and related parties”.
In this regard, Radio Free Asia pointed out in related reports that if the Beijing authorities have found out that the HNA Group has embezzled huge funds, but they have avoided the suspect’s name and related information, this kind of "toothpaste" revelation, The narrative of "Happiness still rests" "seems to reflect that the bargaining in the core of power is still continuing."
The report said that the chaotic financial situation of HNA Group is of course a cause for concern, but its power struggle behind the scenes is more intriguing.
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