China Nears Takeover of HNA Group as Virus Hits Business

China plans to take over indebted conglomerateHNA Group Co. and sell off its core airline assets, the latest example of how the government is stepping in to contain the economic fallout from the coronavirus outbreak.

The government of Hainan, the southern island province where HNA is based, is in talks to take control of HNA after the outbreak hit the conglomerate’s ability to meet financial obligations, according to people familiar with the plans. The airline assets could be taken over later by other local companies, they said. An announcement could be made as early as tomorrow, though talks are ongoing and could be delayed or fall apart, the people said, asking not to be identified as the news is not yet public.

China is under increasing strain from the shutdowns imposed to curb the coronavirus, prompting the government to step in to stabilize the economy. Authorities are considering direct cash infusions or mergers for the hobbled airline industry and the People’s Bank of China said it’ll work to promote consumption and investment to boost domestic demand.

A representative for HNA couldn’t immediately comment; calls to Hainan government officials weren’t immediately answered.

The latest twist in HNA’s fortunes comes as the firm was shedding assets after a global buying spree left it with one of the highest levels of corporate debt in China. HNA shot to prominence in 2016 and 2017 after splurging more than $40 billion on acquisitions across six continents. The once little-known airline operator became the biggest shareholder of iconic companies such as Hilton Worldwide Holdings Inc. and Deutsche Bank AG as well as paying top dollar for high-end properties from Manhattan to Hong Kong.

Read Bloomberg Businessweek’s 2017 cover story: The Conglomerate That Troubles China

In the past year, the once-sprawling conglomerate has been focusing on its aviation roots. In November, it announced a reorganization to divide its businesses into airlines, aviation leasing and airports, with the rest being lumped under its “non-aviation asset management” unit. But its focus on aviation and tourism backfired this year in the wake of the coronavirus outbreak after the epidemic led to an unprecedented drop in flights in and out of China.

The virus epidemic has killed more than 2,000 people, the majority of them in China, where it has crippled the world’s second-largest economy, shuttering stores, bringing factories to a halt and triggering a virtual shutdown of the airline industry.

The impact on business has been spreading around the world, disrupting supply chains of the world’s largest carmakers and hitting sales at companies from Apple Inc. to Burberry Group Plc and Nike Inc. Apple this week said it doesn’t expect to meet its revenue outlook this quarter, joining the growing number of global corporations that either warned about a financial hit or scrapped their forecasts altogether.

— With assistance by Haze Fan, Steven Yang, Vinicy Chan, Heng Xie, Dong Cao, Manuel Baigorri, Cecile Daurat, and Emma Dong

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