HONG KONG -- Companies do not readily admit reaching a point of "life and death."
So when HNA Group did just that in a social media post, it was evident that Executive Chairman Gu Gang's attempts to deal with a crushing debt burden at the formerly acquisitive Chinese conglomerate had not been going smoothly.
Gu was appointed in February to deal with a debt load estimated at $74 billion, the remnants of an acquisition spree that led the group to buy stakes in companies ranging from Deutsche Bank to Hilton Worldwide.
The group began life in 1993 as a regional airline based on Hainan island in southern China. With the company now hounded by bondholders and negative cash flows amid the coronavirus pandemic, some analysts see HNA sliding back to its origins as a small regional carrier.
About $25 billion worth of offshore and domestic bonds are due to mature by the end of 2028, with maturities peaking in 2024, data from Dealogic shows. All those maturing this year are domestic bonds. But offshore debt accounts for $300 million of next year's total of $2.25 billion and a majority of 2022's.
Managing repayments has been complicated further by the pandemic, which has sent markets into gyrations, dulled investor appetite for at any HNA asset sales and stalled the group's operations including airlines, airports and tourism.
"The coronavirus outbreak has just magnified the liquidity crisis at HNA," said Warut Promboon, a credit analyst with research company Bondcritic in Hong Kong. "The aim would now be to meet offshore bond obligations and coerce local investors to accept a delay, hoping asset sales can resume sooner rather than later."
HNA's financial troubles were on display in the confusion over an onshore bond worth 390 million yuan ($55.1 million) that was due Wednesday. Just hours beforehand, the company said it had won approval to defer repayment at a hastily called bondholder meeting Tuesday night.
Later Wednesday, the Shanghai Stock Exchange stopped trading on a 3 billion yuan bond issued in 2015, citing "abnormal fluctuations." The exchange on Thursday suspended bidding on this bond, according to a separate statement.
Hainan Airlines, the group's original flagship unit, also called a meeting to delay a 750 million yuan bond carrying a 4.35% rate that was due Friday.
The hastily called bondholders meetings were not without a cost. The HNA social media post that spoke of the company's life and death challenge criticized the group's own finance department over the handling of the Tuesday meeting. Some investors have filed complaints with regulators accusing the company of manipulating the vote to secure the extension.
The impression of day-to-day firefighting reveals the enormity of the task ahead for Gu, who was chosen by Hainan Province to oversee the group. Gu said on Thursday that it was difficult to deal with challenges emanating from the past expansion and the virus outbreak at the same time.
China Development Bank stepped in to unwind the conglomerate after Chief Executive Wang Jian fell to his death during a sightseeing trip in France in July 2018. Since then, the group has agreed to sell assets worth more than $25 billion.
In February, as the pandemic shuttered swaths of China's economy, HNA sought support from Hainan Province. That resulted in the formation of a joint Hainan-HNA working group led by Gu and local government official Ren Qinghua, who became co-chief executive alongside incumbent Adam Tan.
HNA still owns stakes in 14 airlines, manages 16 airports and retains a fleet of nearly 900 aircraft. Its overseas assets include California-based information technology company Ingram Micro, London-based container leasing firm Seaco and a 70% stake in Irish aircraft lessor Avolon. It sold a 30% stake in the aircraft leasing firm to Japan's Orix in 2018 for $2.2 billion.
HNA Group's revenue fell 7% to 266.4 billion yuan in the first half of 2019, according to one of its bond documents.
HNA is among several private Chinese conglomerates -- along with Dalian Wanda Group, Anbang Insurance, CEFC China Energy, LeEco and Fosun International -- that were forced to curtail aggressive overseas acquisitions to pay off mounting debt as Beijing sought to defuse systemic financial risk.
In November, HNA said the group would split its business into airlines, aircraft leasing and airports, with the rest of the assets labeled as a "non-aviation asset management" unit. Analysts and investors understood this to mean those were marked for sale.
The group has sold hotels, properties in Sydney and the U.S. state of Minnesota, insurers and stakes in Deutsche Bank and Hilton to cut debt from a peak of $86 billion. Though asset sales have helped, its cash holdings have fallen below $7 billion -- the lowest in over five years -- and the company delayed some salary payments last year.
Chairman Chen Feng, delivering a New Year's message to employees, said in the company's official WeChat account: "2020 is the decisive year to win the war against the liquidity problem."
The coronavirus outbreak has damaged those hopes.
Michel Brekelmans, an aviation-focused business strategy consultant with SCP/Asia, said he expected a full breakup of the company.
"Banks and other institutions are looking at significant haircuts," Brekelmans said. "Various bits of the group will eventually be disposed or listed, and the core airline assets will be merged within China's Big 3 airlines, with perhaps a small remnant Hainan Airlines remaining as regional carrier under ownership of the Hainan government."
HNA has acknowledged in its official WeChat account that though it aims to continue with airline, hotel and tourism operations, business is unlikely to return to normal, leading to deteriorating cash flow.
"The problems of HNA Group accumulated over time and it is indeed very difficult to solve them at once especially under the current situation," the statement said.
