Passengers board a Hainan Airlines plane in Gansu, northwest China. (Photo/Xinhua)
Speculation has mounted that the Hainan Airlines Group (HNA) is facing a financial crisis after Hainan Airlines announced on Jan. 29 that it planned to raise a maximum of 8 billion yuan (US$1.27 billion) in funds. It would do so by issuing 1.91 billion shares in order to repay bank loans of about 6.084 billion yuan (US$966.2 million) and supplement its liquidity. The announcement caused a sharp fall in the company’s share prices on Jan. 30.
It has been reported that the Hainan Airlines Group’s affiliates were plagued by a high debt ratio.
Established in 1993 with 10 million yuan (US$1.59 million) in capital, the conglomerate’s total assets have increased to more than 300 billion yuan (US$47.64 billion) at present, due to a repeated cycle of borrowings, acquisitions/mergers and mortgage loans. In addition, it was listed as one of China’s top 500 enterprises for 10 consecutive years, according to a report published by the Guangzhou-based Time Weekly.
The large proportion of mortgage loans in the group’s borrowings has also been a subject of great controversy. According to market rumors, most banks have suspended lending to the group after it rapidly expanded into many areas through asset acquisition and other leverage manipulation.
HNA’s financial predicament became apparent after Hainan Airlines, the main business of the group, received a gloomy forecast. Meanwhile, the group’s affiliate Grand China Logistics is reported to be in heavy debt. While the two subsidiaries expanded their business aggressively at home and abroad, some of their creditors were disappointed by their payment defaults.
Disputes over payment arrears would certainly increase market concern over the group’s capital supply and affect its follow-up borrowing and acquisition of assets, an industry observer said.
In response, Chen Feng, HNA Group chairman, said the company’s revenues were more than 100 billion yuan (US$15.88 billion), denying that it had a capital supply problem.
Market experts have speculated regarding Chen’s approach. They said he may believe that even though the group has had problems raising funds, it could still use the shares of its listed affiliated companies as collateral to obtain bank loans for expansion.
Despite the difficulties it is facing, the group continues to expand and diversify. However, market analysts said the fast expansion could cause long-term shortage of capital for the conglomerate.
On the other hand, through its continuous expansion, the group has benefited from cooperation with local governments. Its acquisition of Anqing Airport is one such example. Since its airlines company bought the airport in eastern China’s Anhui province in October 2005, the city government has provided various subsidies to its operations.
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