HONG KONG -- China's embattled HNA Group revealed on Thursday that it owes $170 billion to creditors, marking a turning point in the government-led restructuring of one of China's highest-profile bankruptcy cases.
Gu Gang, head of HNA's court-appointed working group and secretary of the debt-laden conglomerate's most important Communist Party cell, reported to almost 2,000 party cadres and employees of subsidiaries in an internal meeting, according to HNA Group's official WeChat account.
He said the group had received a total of 2 trillion yuan ($310 billion) worth of claims from creditors since the bankruptcy process officially started in February. Of that amount, the group has acknowledged 1.1 trillion yuan, or about $170 billion, as liabilities, Gu said, without providing further details.
The announcement means HNA Group -- a web of subsidiaries spun around a core airline business -- has finally recognized the overall size of its liabilities. The news comes after a series of official meetings with creditors and investors this week, in the run-up to China's seven-day National Day holiday.
When the bankruptcy filing was made at the end of January, how much the group actually owed could not be nailed down.
HNA Group was once among China's most acquisitive conglomerates, buying up assets such as the Radisson hotel chain, aviation services company Swissport Group and stakes in Deutsche Bank and airlines and airports, in countries as far flung as Brazil, Australia, Ghana, Turkey and South Africa. This rapid, debt-fueled expansion led to a cash crunch in 2017.
The People's High Court of Hainan Province, which accepted the bankruptcy case, decided to pursue the restructuring by consolidating the parent HNA Group with 320 affiliates. The court described the conglomerate's operations as "highly mixed up" and "chaotic," with group companies independent in name only.
In a statement in March, the court put the magnitude of management disarray in blunt terms: "All in all, HNA Group has gone beyond the corporate governance structure."
The working group later proposed reorganizing the HNA companies into four independent entities: airline, airport, finance and other businesses including commercial. Gu said in mid-September that these new entities would "each be led by new controlling shareholders and completely be independent from each other."
Little of what happened at the four-day meetings was revealed, but a glimpse can be seen through disclosures by a few listed companies in Shanghai and Shenzhen.
On Thursday, investors in HNA's retail and wholesale arm CCOOP Group approved an arrangement to expand the capital base more than fourfold. The Shenzhen-listed arm is expected to become the core of the new "commercial and other" business cluster by merging with 24 other companies.
Earlier in the week, investors in two other core listed units, Hainan Airlines Group and HNA Infrastructure Investment Group, endorsed similar deals.
The bankruptcy administrators have selected Liaoning Fangda Group, an industrial conglomerate with operations in carbon, steel, medicine and retail, as the carrier's strategic investor. Hainan Development Holdings, a conglomerate controlled by the Hainan provincial government, has been appointed as strategic investor for the infrastructure company.
Hainan Airlines plans to merge with 10 other airline-related companies to form a single new unit. These include seven other carriers: Urumqi Air, Fuzhou Airlines, China Xinhua Airlines, Shanxi Airlines, Lucky Air, Air Changan and Guangxi Beibu Gulf Airlines. Meanwhile, HNA Infrastructure is set to form a new airport group by combining with 20 other related companies.
However, the restructuring arrangement still needs approval by creditors, with the respective votes postponed to Oct. 20. According to HNA's official WeChat account, the overall procedure is anticipated to be concluded by November.
Immediately preceding the week of meetings to advance the restructuring, HNA Chairman Chen Feng and CEO Tan Xiangdong, co-founders of the group, were detained by local Hainan police "due to alleged crime," according to the company's statement on Sept. 24.
Chen and Tan, also known as Adam Tan, had de facto control over HNA Group's largest shareholder, Hainan Cihang Charity Foundation, as the core of the previous management team. The allegations against the duo and their whereabouts remained unknown as of Thursday evening.