Shares of HNA affiliates rally after report of China bailout plan

* Key HNA-related shares up by 10% daily limit in China

* Hainan govt plans HNA takeover, airline asset sale-Bloomberg

* Air China, China Eastern prepared to discuss plan -source

By Zoey Zhang and Brenda Goh

BEIJING/SHANGHAI, Feb 20 (Reuters) – Shares in affiliates of HNA Group surged on Thursday following a news report that China plans to take over the debt-laden conglomerate as the coronavirus outbreak has further hit its ability to meet financial obligations.

The government of the southern province of Hainan, where HNA is based, is in talks to take control of the group and sell off its airline assets, Bloomberg said on Wednesday, citing people familiar with the matter.

HNA, which controls or holds stakes in a number of domestic carriers including its flagship Hainan Airlines, did not immediately respond to requests for comment on the report.

China’s aviation regulator said last week it would support restructuring or mergers to help airlines cope with the fallout of the epidemic, which has prompted carriers to cancel thousands of flights.

The Bloomberg report said that under the plan most of HNA’s airline assets would be sold to China’s three top carriers – Air China Ltd , China Southern Airlines Co and China Eastern Airlines Corp .

Air China and China Eastern are prepared to hold talks, but a deal could take time as the industry also battles the fallout from the virus outbreak, a source with direct knowledge of the matter told Reuters.

Air China and China Eastern did not immediately respond to requests for comment. China Southern declined to comment.

Shares in Hainan Airlines, HNA Innovation and HNA Investment Group rose by their 10% daily limit after the news report of the planned takeover.

HNA Technology, Bohai Leasing and HNA Infrastructure Investment Group gained 4% to 9.6%. Hong Kong-listed stocks linked to HNA also rose.

Heavily indebted HNA Group has restructured jet orders with Europe’s Airbus in a deal that includes an order for dozens of A330neo jets, two people familiar with the matter told Reuters.


HNA Group was once one of China’s most aggressive dealmaking firms, spending $50 billion on acquisitions that included stakes in Deutsche Bank and Hilton Worldwide, and prime property in New York, Sydney and San Francisco.

Its total borrowings were 706.7 billion yuan ($100.6 billion) as of the end of June, data filed to the government shows.

It began unwinding many acquisitions to focus on its core airlines and tourism businesses after racking up high levels of debt and drawing regulatory scrutiny.

But the prices HNA has sought and the complex structures, loans and other business bonds among its holdings have made it tough to unwind them, bankers said.

In December, Chairman Chen Feng said the firm had delayed some salary payments in 2019 because of cash flow shortages, but vowed to resolve liquidity risks in 2020.

However, the virus outbreak has pressured the industry this year, prompting flight cancellations and adding to an already weak outlook for demand in a slowing global economy.

Airlines have tried to cut losses by putting foreign pilots on unpaid leave. Hong Kong Airlines, also part-owned by HNA, has said it will cut 400 jobs. (Reporting by Bhargav Acharya in Bengaluru, Zoey Zhang in Beijing and Brenda Goh in Shanghai; Editing by Miyoung Kim and Himani Sarkar)

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