China’s long campaign to contain the fallout from the collapse of conglomerate HNA is facing growing opposition from disgruntled Chinese creditors, according to documents and private social media groups seen by the Financial Times.
Frustrated creditors have threatened to take their complaints about state administrators handling the group’s bankruptcy to the Chinese Communist party’s internal oversight body, in a dispute that could threaten one of the country’s most complicated and globally significant restructurings.
“Our dignity cannot be trampled on! We will never give up,” one claimant said.
The overhaul of HNA, which started as an airline and became a global conglomerate, is a critical test of Beijing’s ability to handle “too big to fail” entities, as the country’s economic planners grapple with worse than expected growth alongside crises stemming from property sector indebtedness and crippling energy shortages.
Beijing’s approach to HNA, which collapsed after it amassed debts of $90bn, has attracted greater scrutiny amid fears over the fate of Evergrande and the fragility of Chinese corporate restructurings. Evergrande, the world’s most indebted property group, missed interest payments last month, sparking protests from domestic investors and rocking global markets.
Tens of thousands of Chinese creditors owed money by Hainan-headquartered HNA have until Wednesday to vote on a proposal to revamp 321 group companies into four new entities, which would hand control of its aviation, airport, financial and commercial units to state and private shareholders.
But the deal, which has been years in the making, has drawn scathing criticism from smaller creditors and former employees who believe that their interests have been disregarded in a rush to close an embarrassing episode for Chinese financial regulators.
“We want the government to see our disagreement and anger and pressure HNA . . . to adjust and redraft a fair proposal,” one creditor told the FT. The individual, who asked not to be identified for personal safety reasons, said their family’s losses from HNA’s collapse totalled more than Rmb2m ($311,000).
The vote planned for Wednesday is the latest twist in the decades-long saga of HNA, a sprawling conglomerate whose top executives had deep political connections, including to Wang Qishan, China’s vice-president and a close ally of President Xi Jinping.
But the company and its affiliates were placed into bankruptcy administration in February as corporate disclosures revealed that billions of dollars of its funds had been used for non-business purposes.
According to documents seen by the FT, across the 321 companies over 64,000 creditors have claimed more than Rmb1.46tn ($227bn) in liabilities. One creditor called for accountability over a lack of supervision of HNA and warned that ordinary people’s “hard-earned” savings and pensions would be sacrificed in exchange for the administrator’s “victory” in completing the restructuring.
“This is a result that the CPC Central Committee and the State Council absolutely do not want to see!” one written complaint said, referring to China’s top leadership bodies. In the complaint, some creditors also alleged misconduct by the administrators and called on the Central Commission for Discipline Inspection, the Communist party’s internal oversight group, to investigate.
HNA could not immediately be reached for comment over the claims made by creditors.
With some HNA creditors fearful of voicing their complaints publicly, social media has emerged as a “fierce battleground” between interest groups, according to one of the creditors.
In strained exchanges in private groups viewed by the FT, creditors complained that the terms under consideration were “heartless” and the administrators were “shameless”. Others said they felt compelled to vote for the plan because it was their only chance to realise returns.
HNA was previously China’s most aggressive international dealmaker, embarking on a global acquisition spree that included stakes in the Hilton hotel chain and the biggest single shareholding in Deutsche Bank.
The group’s downfall gathered pace in 2017 when Beijing clamped down on offshore cash flows and regulators from Bern to Wellington blocked its deals over questions regarding the group’s governance and ownership.
HNA’s chair Chen Feng and chief executive Adam Tan were taken into custody late last month. The grounds for their detention have not been revealed. Co-founder Wang Jian fell to his death in France in 2018.
Analysts see Beijing’s handling of HNA as instructive for a potential Evergrande insolvency.
Betty Wang, a senior China economist at ANZ, said under “the worst-case scenario of an [Evergrande] insolvency, an HNA-style bankruptcy restructuring could be applied”.
“The bottom line — repeatedly highlighted by the [People’s Bank of China] — is to protect individual consumers and investors,” she added.
Additional reporting by Emma Zhou in Beijing