Who would have thought that HNA Group, the second largest private enterprise in China, would fall to the point of bankruptcy? This aviation giant, which was once among the top 500 private enterprises in China, is now being restructured and even bankrupt under the pressure of huge debts!
This shocking news has caused an uproar in China's business circles. Many people can't help but start to reflect on how this once-thriving aviation giant went into decline. What kind of hidden worries and hidden dangers are hidden?
Let's uncover the tip of the iceberg of HNA's bankruptcy and appreciate the thrilling behind this Chinese-style "commercial thunderstorm"!
HNA Group's "High Speed" and "High Debt"
Looking back on the development of HNA Group, it is not difficult to find its "crazy expansion". In just two or three years from 2015 to 2017, HNA Group has spent US$26 billion to acquire Hilton Hotel Group, US$1.3 billion to acquire Hyatt Hotels Group, US$6.3 billion to acquire German commercial real estate, and US$6 billion to acquire Pakistan International Airlines.
This kind of crazy acquisition behavior has caused HNA Group to expand rapidly, and has formed a certain monopoly position in many fields such as aviation, hotels, and tourism. For a time, HNA Group became the largest private airline in China and was known as the "aviation overlord" of domestic private enterprises.
However, behind this rapid development, there are also huge risks. In order to sustain this frenzied expansion, HNA Group has been raising funds through debt leverage. By 2019, HNA Group's total liabilities had reached 618.3 billion yuan, with a debt ratio of 90%.
It can be said that the development history of HNA Group is a history of the coexistence of "high speed" and "high debt". This former aviation giant has fallen to the brink of bankruptcy in just a few years.
To get to the root cause, it is not difficult to find the following problems in HNA Group:
Over-reliance on debt leverage for M&A expansion
HNA Group's rapid expansion in a short period of time relies heavily on large-scale debt financing. It is not difficult to find that during that period, almost every large-scale merger and acquisition was supported by huge debts.
This model may seem like a rapid expansion, but it also dramatically increases the financial risk of the business. Once the business environment changes, it is extremely easy for companies to fall into debt crisis.
Excessive pursuit of scale and neglect of risk management
In the process of mergers and acquisitions, HNA Group was completely confused by the expansion of scale, and lacked adequate assessment and control of risks. Judging from the large-scale mergers and acquisitions of Hilton Hotels Group and Hyatt Hotels Group, it is clear that HNA is attracted by its scale and status, while ignoring the risks of these investments themselves.
Facts have proved that these mergers and acquisitions involving foreign companies have indeed brought huge challenges and risks to HNA Group. Especially under the impact of the epidemic, these overseas assets have been even worse, which has dealt a fatal blow to HNA's financial situation.
There is a lack of effective risk early warning and response mechanisms
The fundamental reason why HNA Group is in such a dangerous situation is that it lacks an effective internal risk warning and response mechanism. In the face of expanding debts and an increasingly severe business environment, HNA Group has been unable to make correct judgments and decisions.
It was not until 2019 that it was revealed that HNA Group was no longer controlled by founder Wang Jian, which attracted great attention from the outside world. It can be said that the lack of effective supervision and early warning mechanisms within the HNA Group has led to the worsening of this crisis.
From the fate of HNA Group, it is not difficult to see that for any enterprise, over-reliance on debt leverage, blind pursuit of scale expansion, and neglect of risk management and control are fatal. Only by establishing a sound risk early warning and response system can enterprises remain cautious and calm in the rapidly changing market environment.
The lesson of "big but not strong".
Today, we are once again witnessing the tragedy of the fall of a once glorious private enterprise. And this has once again triggered people's reflection on "big but not strong".
In fact, the fate of HNA Group also reflects some common problems faced by private enterprises in mainland China in the process of rapid development:
Over-reliance on financial leverage
In the process of rapid expansion, a large number of private enterprises have over-relied on financial leverage to promote their own development. This approach may seem like a rapid expansion, but it also unknowingly accumulates huge financial risks.
In the event of a significant change in the operating environment, these companies are at high risk of falling into debt crisis. We need to not only look at the speed at which a business grows, but also pay attention to its intrinsic financial security.
Blind pursuit of scale expansion
In the process of development, many private enterprises pursue scale expansion too much and ignore risk control. They are often confused by the immediate pace of growth and market position, and lose sight of the foundations of long-term sustainability.
We need to establish a correct concept of enterprise development, not only pay attention to "big and complete", but also consider the core competitiveness and long-term profitability of enterprises. In this way, we can truly achieve steady and sustainable development.
Lack of effective internal governance
In the process of rapid development, many private enterprises often lack a sound internal governance mechanism. The professionalism and independence of the decision-making level are insufficient, and internal supervision is difficult to play its due role.
This makes it easy for enterprises to be excessively influenced by personal will, and it is difficult to form a scientific and reasonable decision-making mechanism. We need to promote private enterprises to improve their internal governance, enhance the professionalism and democracy of decision-making, and effectively protect the interests of small and medium-sized shareholders.
Over-reliance on government support
In the process of development, many private enterprises are overly dependent on government support and resources. They often regard policy dividends as a "free lunch" for their own development, ignoring their own innovation ability and management level.
Once the policy environment changes, it will be difficult for these companies to respond to market challenges independently. We need to encourage private enterprises to enhance their independent innovation capabilities, improve their management level, and not rely too much on policy support, but rely on their own strength to open up the market.
Reflections triggered by the end of HNA Group
The fall of HNA Group also makes us deeply reflect on what kind of warning this once glorious aviation giant hides.
The fate of HNA Group reminds us that over-reliance on financial leverage is not advisable. Over-reliance on debt financing for M&A expansion can achieve rapid growth, but at the same time, it is also accumulating huge financial risks. This not only exacerbates the debt burden of enterprises, but can also lead enterprises to fall into debt traps.
The story of HNA Group illustrates the dangers of blindly pursuing scale expansion while ignoring risk management. In the process of development, enterprises should not only be confused by size and status, but ignore the risks of investment itself. This can not only lead to a huge waste of money, but also lead to a serious business crisis.
The fate of HNA Group also reflects the fact that the lack of effective internal governance mechanisms can exacerbate the risks of the company. HNA Group's decision-making level lacks professionalism and independence, and the internal supervision mechanism is difficult to play its due role, which ultimately makes it difficult for the company to make correct judgments and responses.
The fall of HNA Group has also shown us that it is not advisable to rely too heavily on government support. Relying too much on policy dividends will make enterprises lack independent innovation ability and market adaptability, and it will be difficult for them to survive independently once the policy environment changes.
Overall, the story of HNA Group is a wake-up call. Whether it is a private enterprise or a state-owned enterprise, in the process of rapid development, we must remain vigilant and do a good job in risk management and control, in order to truly achieve sustainable and healthy development.
We need to learn from the lessons of HNA Group and adhere to a healthier and more sustainable development path. Let's work together to build a more prosperous and stable Chinese enterprise ecosystem!
Dear readers, what are your thoughts and thoughts on the collapse of HNA Group? Feel free to share your views in the comments section.