(Yicai Global) March 16 -- China’s HNA Group has entered bankruptcy rehabilitation after years of efforts, including a specially assigned local government task force, have failed to find a way for the aviation-to-financial services conglomerate to get out of its crippling debt crisis.

The High People’s Court of Hainan Province has approved the merger and restructuring of the HNA Group and 320 affiliates, which refers to the merging of the assets of indebted parties to help pay off debt, the court said yesterday. The 320 units account for 85 percent of the Haikou, southern Hainan-based group’s liabilities.

Strategic investors can now be introduced to bring in new financing, and many private organizations are already in talks with the group, a source with knowledge of the matter told Yicai Global. However, old shareholders will lose all their equity once the reorganization is complete.

The insolvency administrators have nine months to work with creditors and investors to determine a debt settlement plan, which includes repayment amounts and deadlines, said Liu Zhengdong, chief partner of MHP Law Firm and president of Shanghai Bankruptcy Administrators Association. Should the plan fail to be submitted on schedule, the court will declare the debtor bankrupt, he added.

Creditors are scheduled to hold their first meeting on June 4. In the meantime, HNA can continue to operate and borrow funds.

High-Flying Past

HNA’s bedrock industry is in aviation. It set up Hainan Airlines in 1993 which went on to become one of the largest civilian-run air transport companies in China and the tenth-largest airline in Asia in terms of passengers carried. Through its subsidiary Hainan Aviation, the firm also controls a number of other local carriers, including Shanxi Airlines, Chang An Airlines and China Xinhua Airlines.

After 2000, the Group diversified aggressively into several other industries including tourism, logistics and real estate. It went on a huge spending spree, acquiring multiple businesses both in China and abroad, including splurging USD40 billion on ritzy properties over six continents. It soon ran into liquidity difficulties and by 2017 had run up debts of USD94 billion. The firm has daily repayments of around CNY100 million (USD14.3 million).

The recent outbreak of novel coronavirus has only made matters worse. HNA has had to virtually suspend all its civil aviation operations as the epidemic has thinned passenger counts to a trickle leaving the air carrier unable to meet its financial commitments.

Last March the Hainan government dispatched a team to help sort out its debts, but stopped short of offering a government bailout. Creditors filed for rehabilitation bankruptcy, which allows the firm to try to get back on its feet through the restructuring of assets, at the end of January.

Editor: Kim Taylor