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HNA Group-linked stocks tumble after bankruptcy petition

Hainan Airlines falls by nearly 10% after disclosing $7bn loss on group dealings

Shares of HNA Group flagship Hainan Airlines fell by nearly the maximum 10% allowed on the Shanghai Stock Exchange on Feb. 1.   © AP

HONG KONG -- Shares of companies under China's embattled HNA Group fell heavily on Monday following the disclosure over the weekend that bank creditors had petitioned for a court-supervised bankruptcy restructuring of the conglomerate in its home province of Hainan.

Flagship unit Hainan Airlines as well as department store operator CCOOP Group and HNA Technology each closed down just under 10%, the maximum daily movement on most mainland exchanges.

Bohai Leasing, which controls Ireland-based jet leasing company Avolon Holdings, fell 9.4% Shenzhen while logistics affiliate CWT International dropped by the same amount in Hong Kong.

Shares of other group companies did not fare as badly.

HNA Innovation fell 5% in Shanghai, while HNA Infrastructure Investment Group slipped 0.6% there and HNA Technology Investments Holdings was flat in Hong Kong.

Shenzhen-listed HNA Investment Group actually saw its shares rise by the maximum 10%, while Hong Kong-listed Meilan International Airport picked up 3.5% and HY Energy Group gained 0.8% in Shenzhen.

The dramatic share moves came after Hainan Air, CCOOP and HNA Infrastructure alerted shareholders over the weekend that irregular transactions with other group companies uncovered by a state-appointed working group would cause them heavy losses on their 2020 results.

Industry observers speculated that HNA Investment and others may have been spared the worst of the selling based on views of their potential value apart from the group.

"Most HNA-related stocks have been depressed for some time, and perhaps what we are seeing is some investors are starting to look at the endgame where the government will step and hive all bad assets into a separate vehicle to allow entities that are structurally sound to stand on their own feet," said Michel Brekelmans, managing director of strategy consultancy SCP/Asia. "So perhaps some of these assets are starting to get a reprieve from the HNA Group discount."

Added David Yu, a finance professor at New York University Shanghai who focuses on aviation, "There is also a bit of showing the strength of the underlying assets of those particular firms."

Hainan Air alone said it would record a 46 billion yuan ($7.16 billion) impairment loss in relation to the transactions.

HNA incurred its heavy debts during a debt-fueled global acquisition spree that saw it buy up companies ranging from the Radisson hotel chain to technology products distributor Ingram Micro.

The weekend filings detailed that the petitioners seeking to put HNA into bankruptcy include state-owned bad loan manager China Huarong Asset Management, Ping An Bank, Bank of Hainan, Chang'an Bank, a few travel agents and many suppliers. The debtors have targeted at least 60 group companies in addition to HNA itself.

"Investors should focus on company fundamentals," said Kenny Wen, wealth management strategist at brokerage Everbright Sun Hung Kai in Hong Kong. Noting the creditors' bankruptcy petition, he added, "Although it is unclear what drives the market sentiment, I do not suggest investors invest in related companies. ... The future development and stock movements will be highly uncertain."

It is unclear when the Hainan Province High People's Court will rule on the bankruptcy petition. In the meantime, HNA Group has said it will seek to continue normal operations.

HNA Group had 706.72 billion yuan in total liabilities at the end of June 2019 against total assets of 980.06 billion yuan. The group, which itself is not listed, has not published financial data since then.

Separately, GCL-Poly Energy Holdings, a Chinese solar panel maker, said Monday that it had defaulted on a $500 million bond on Sunday.

It warned that its failure to report the debt on time would trigger defaults on other borrowings that could "have a material negative impact on our business, results of operation and financial position going forward."

It said other creditors had not yet made demands for early repayment.

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