BEIJING/SYDNEY/HONG KONG/SHANGHAI: Hainan Airlines Holding Co Ltd, HNA Group’s flagship firm, is operating normally and could draw in new investors despite a bankruptcy filing, embezzlement charges and large asset impairments for the carrier last week, some analysts said.
A strong route network, high brand value and an experienced management team as well as restructuring efforts by China’s No. 4 carrier, were among the reasons cited.
HNA units, including the airline, will spend this year negotiating to bring in strategic investors, an HNA Group executive told Reuters. The executive was not authorised to speak publicly on the matter and declined to be identified.
Chinese financial publication Caixin has also reported strong interest from potential suitors in the airline, although it did not name them. It said Hainan Airlines, the country’s biggest non state-owned carrier, aimed to remain independent.
Hainan Airlines declined to comment on potential investment.
“Hainan Airlines itself should be fine,” said Chinese aviation expert Li Xiaojin. “It is most likely Hainan Airlines will continue to operate, but there might be a change in ownership.”
Hainan said in a message sent to customers in its loyalty programme that the reorganisation would not have any significant impact on its daily operations, as it is aimed “to resolve financial and debt issues in accordance with the law.”
HNA Group creditors applied to a Chinese court on Friday, asking that the company be placed in bankruptcy and restructured. The airline, which has warned it could be delisted if declared bankrupt, saw its shares plunge 9.8% on Monday, valuing it at around US$3.6 billion (RM14.56 billion).
Like much of the global airline industry, Hainan Airlines has been reeling amid the coronavirus pandemic but financial woes have compounded its problems. Its domestic traffic halved last year, steeper than declines of 19.2% to 32.7% for its state-owned rivals.
It also expects to slide deep into the red, estimating a net loss of 58 billion yuan to 65 billion yuan (RM36.38 billion-RM40.77 billion) for 2020. That includes 46 billion yuan in impairments.
By comparison, China Southern Airlines Co Ltd, China Eastern Airlines Corp Ltd and Air China Ltd have predicted losses of 7.9 billion yuan to 15.5 billion.
Others were somewhat more cautious about Hainan Airlines’ ability to woo investors amid the pandemic.
“In any stronger market landscape, we can say Hainan might be quite attractive given its network and general demand, but the pandemic has obviously flipped the script entirely,” said Luya You, transportation analyst at BOCOM.
Hainan Airline has a fleet of 220 planes.
Embattled HNA Group is looking for private investors to help it emerge from bankruptcy, a person with knowledge of the matter said, but bankers and analysts say restructuring may be challenging due to its debt pile and opaque corporate structure.
The creditors’ move to file for bankruptcy came after HNA was put under a restructuring exercise led by the Hainan government to resolve its liquidity risks stemming from years of aggressive acquisitions abroad.
HNA, whose flagship business is Hainan Airlines, used a US$50 billion global acquisition spree, mainly fuelled by debt, to build an empire with stakes in businesses from Deutsche Bank to Hilton Worldwide.
The person close to the restructuring process said while the courts will process creditors’ bankruptcy filings, HNA’s work group led by its newly-elected party secretary Gu Gang will simultaneously work on bringing in strategic investors.
He said the group was targeting private sector investors, including for its Hainan Airlines business, rather than state-owned ones, adding that some existing shareholders will exit in the process.
Shares in listed companies linked to HNA slumped on Monday, after the troubled conglomerate disclosed that its creditors had applied for its bankruptcy and that nearly US$10 billion had been embezzled by shareholders of its three units.
Hainan Airlines, HNA Innovation, CCOOP Group , HNA Technology and Bohai Leasing tumbled between 5% and 10%.
“HNA is in a messy situation. I don’t think the restructuring is going to be easy,” said a senior banker based in Hong Kong, who has had dealings with HNA in the past. The banker declined to be named due to the sensitivity of the matter.
Beijing has been putting more pressure in recent years on opaque corporate structures, excess debt and deals it sees as overly aggressive as it tried to control capital outflows and keep its economy on an even keel.
“Fundamentally a bigger but very old story at play â if you expand your business by borrowing money … you better have the money to pay for all this,” Fraser Howie, an independent commentator and author of books about China’s financial system, said.
Noting China’s past history of acquisitive conglomerates, he said: “Every one of them has been dismembered, dismantled and restricted to varying degrees. That type of company is gone and not coming back.”
Unlisted HNA’s acquisition of marquee assets was also followed by intense pressure from the regulators overseas to provide greater clarity about who owns the conglomerate, adding to its financial problems.
HNA, which has been struggling with liquidity issues in the last couple few years, has US$27.5 billion worth of outstanding bonds in various currencies and another US$20 billion in loans, according to data compiled by Dealogic.
“We are not optimistic with the credit situation of HNA Group, and reckon the possible result of the restructuring is the sale, spin-off of its core assets, and forced debt-to-equity swaps,” said D.E. Institute, a think tank that focuses on credit outlook and default analysis.
In recent years, HNA sold assets such as airport services company Swissport and electronics distributors Ingram Micro.
The Hainan government would prefer to keep Hainan Airline as a private carrier due to its own limited financial resources, said Huang Zhenda, a senior co-partner at Beijing Deheng Law Offices and a former HNA executive.
Law firm King & Wood Mallesons has been hired to lead the restructuring, according to two sources with knowledge of the matter, including the first person cited above. The whole bankruptcy restructuring process is expected to conclude within 2021, said the first person.
All sources declined to be identified as they were not authorised to speak to the media.
HNA declined to comment beyond its public filings. King & Wood Mallesons declined to comment. Calls to the Hainan government went unanswered and it did not immediately respond to a faxed query for comment. â Reuters
