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China debt crunch

Chinese court puts HNA Group into bankruptcy administration

Judicial appointees to oversee some 60 affiliated companies

Hainan Airlines Group, HNA Infrastructure Investment Group and CCOOP Group were granted special permission to carry on their daily businesses and administer their own accounts.    © AP

HONG KONG -- A Chinese court has placed HNA Group and many of its affiliates into administration in response to a creditors' petition for a bankruptcy restructuring of the sprawling corporate empire.

The People's High Court of Hainan Province, where HNA is based, has appointed a team to manage the group's affairs, according to stock exchange disclosures on Wednesday and Thursday by about a dozen affiliated companies listed in Shanghai, Shenzhen and Hong Kong.

The appointed overseers will now be responsible for managing the assets of some 60 group companies, including their accounting and business records and corporate seals, and producing a report on their financial positions in preparation for asset sales. Creditors are to submit claims by the end of March ahead of discussion meetings set to start in mid-April.

The administered companies aim to sustain normal operations, though the court appointees will have authority and discretion to halt business.

Hainan Airlines Group, HNA Infrastructure Investment Group and CCOOP Group were granted special permission to carry on their daily businesses and administer their own accounts under the leadership of a working group established a year ago by the Hainan government.

The eight carriers under the wing of Hainan Airlines Group operated 346 aircraft as of Dec. 31.   © AP

In the wake of the filing of the creditors' petition on Jan. 29, the three companies had disclosed the discovery following an investigation ordered by Beijing in October that more than 100 billion yuan ($15.5 billion) of their combined assets had been siphoned away by HNA Group and other affiliates.

Many of the misappropriations were done without required approvals from the companies' boards or shareholders, according to the disclosures.

Due to the court's initiation of bankruptcy restructuring procedures, the three companies will now be placed under probation by the Shanghai and Shenzhen stock exchanges. The trio are classified to be on the brink of delisting, with daily price movements restricted to 5%, compared with 10% for ordinary shares.

Their special status will be denoted by the label "*ST" -- for special treatment -- at the front of the market tickers, with trading to be suspended for a day on Feb. 18, the next session after China's weeklong Lunar New Year break.

CCOOP, a Shenzhen-listed retail and wholesale unit, said that "there is a risk of restructuring failing" and the company being forced by the court to shut down and liquidate. Shanghai-listed Hainan Airlines and HNA Infrastructure made similar remarks in their respective statements.

Hainan Airlines, the fourth-largest mainland Chinese carrier, will enter restructuring against the background of an aviation sector already highly stressed by the coronavirus pandemic.

Subhas Menon, director general of the Association of Asia Pacific Airlines, told reporters at an online news conference on Tuesday that its case is different from other ailing carriers because it involves "a more fundamental restructuring, which was probably already taking place before the COVID-19 crisis."

"If there is downsizing and restructuring, there will definitely be excess aircraft which would compound the situation, because already quite a lot of fleets are grounded," he said.

The eight carriers under the wing of Hainan Airlines operated 346 aircraft as of Dec. 31. HNA also controls a number of other carriers outside of the Hainan Airlines Group, including Hong Kong Airlines.

Observers believe a court-administered restructuring will be positive overall for HNA's businesses.

Shinichi Seki, a senior economist specializing in China at the Japan Research Institute, said that this could enable the Hainan government, which has been highly supportive of the debt-ridden conglomerate, to "take up a certain portion of the responsibilities," while offering symbolic support for legal transparency.

He believes the expansion of its businesses -- and consequently its debts -- would not have been possible without official support.

"This could spur other local governments to act on compressing debt levels of their local state-owned enterprises before reaching a brink of bankruptcy," he said.

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