Stock prices of companies under China's HNA Group Co surged late last week following rumors of the government's intention to take over the financially troubled conglomerate. The company currently owns a number of businesses in different industries, including those in the financial services sector, airline, and tourism.
In Shanghai, the company's Hainan Airline Holdings Co surged by more than 10 percent, hitting the exchange's daily trading limit, to 1.76 yuan per share. HNA Innovation Co, another company owned by HNA Group which engages in businesses such as real estate development and tourism, also surged by the maximum 10 percent in Shanghai.
HNA Group's HNA Infrastructure, a company that offered airport management and infrastructure services surged by 8.76 percent following the media reports claiming the government's intention to take over.
The rally in the stocks has been seen as a clear indication that the government's plan to take over the conglomerate is a positive development. The claims were first made by Bloomberg, which stated that China could potentially take over the company and sell off its airline business to keep it afloat.
The report cited sources that were familiar with the negotiations, which apparently also revealed that government officials of China's Hainan province was engaging in talks with HNA Group executives. However, a senior executive at HNA Group told reporters a day later that the claims were not accurate and that he has not been informed of any such talks actually taking place.
Over the past decade, HNA Group had made substantial moves in expanding its business at home and abroad. This included the purchase of billions of dollars worth of assets, which had caught the attention of Chinese financial regulators. Since then, the company had run into financial difficulties brought on by strained cash flows and mounting debts. HNA Group was forced to dispose of a large chunk of its assets and shifting its focus more on its core businesses.
In June last year, the company disclosed that its total debt had reached around 525.6 billion yuan. In its financial statement, the company revealed that it had cash or short-term investments worth only around 50.4 billion yuan. Due to the continued challenges, which were exacerbated by the recent viral epidemic that hit its core airline and tourism business, HNA Group had reportedly found it very hard to meet its financial obligations.
For this reason, some reports had speculated that the Chinese government could be looking to bail out the company. HNA Group chairman, Chen Feng, had mentioned in December that 2020 would be a crucial year for them to turn things around and resolve its liquidity risks.
