HNA Holdings is caught in the whirlpool of "delisting at face value", can Fang Wei turn the tide?

The lessons of the "HNA system" are still vivid, and now after Fang Wei took over, HNA Holdings once again fell into the risk of delisting at par value. The downturn in the stock price is only the tip of the iceberg, and its heavy debt burden is the problem that HNA Holdings needs to solve urgently. Whether HNA Holdings can achieve "redemption" on the precipice of delisting and regain the trust of the market and investors will be a severe test for the "Fangda system".

Two years after the bankruptcy reorganization, HNA Holdings began to fall into the risk of delisting at par value.

On June 28, HNA Holdings opened low again, falling to 1.00 yuan / share in the intraday, and the stock price rebounded near the close, and finally closed at 1.02 yuan / share, down 6.42%, with a net outflow of 109 million yuan from the main funds, accounting for 18.07% of the total turnover.

According to the regulations of the exchange, if the closing price of the company's shares is lower than 1 yuan for 20 consecutive trading days, it will touch the forced delisting of trading and be terminated by the Shanghai Stock Exchange, which means that HNA Holdings may face the crisis of delisting at face value.

As for why the share price of HNA Holdings has fallen to such a point, HNA Holdings said embarrassedly that the stock price in the secondary market is affected by many complex factors such as the macroeconomic environment, domestic and foreign industrial policies, market trends and industry situations, investors' psychological expectations, and the company's operating performance.

Although HNA Holdings intends to manage its market value, various historical problems left over from the company's bankruptcy and reorganization are still a major "burden" that drags down HNA Holdings. Among them, the most obvious is the debt problem, the debt ratio was still as high as 98.46% by the end of the first quarter of this year, with a total debt of 132.713 billion yuan.

At the same time, the "Fangda Department" company under Fang Wei, the actual controller of HNA Holdings, is not rich.

Approaching the "red line of delisting" of 1 yuan

HNA Holdings' share price has been depressed for a long time.

Among the seven listed airlines, HNA Holdings is the one with the lowest share price, and the rest of the airlines are all above 3 yuan, of which Juneyao Airlines' share price is more than 10 yuan, and Spring Airlines' share price is more than 50 yuan.

Entering 2024, the share price of HNA Holdings will mostly remain below 1.5 yuan per share, until June, the share price of HNA Holdings has accelerated and fluctuated lower. As of the close of trading on June 28, HNA Holdings fell 25.00% in the month, and finally closed at 1.02 yuan per share.

The approaching "1 yuan line" has become a sword of Damocles hanging over the head of HNA Holdings.

In April this year, the China Securities Regulatory Commission issued the "Opinions on the Strict Implementation of the Delisting System", which clearly pointed out that once the closing price of a listed company's shares is lower than 1 yuan for 20 consecutive trading days, the par value delisting mechanism will be triggered, and the company's shares face the risk of being terminated from listing.

In order to change the status quo of the stock price falling endlessly, on June 25, HNA Holdings just released the "2024 Action Plan for Improving Quality and Efficiency and Emphasizing Returns", which stated that in 2024, the company will continue to summarize the experience of fine management in the early stage, continue to improve the level of fine management, and create benefits for all shareholders.

In addition, HNA Holdings also mentioned that the company will increase cooperation with sell-side institutions to expand the coverage of the company's stock research, improve market attention, and promote the reasonable valuation of stocks; Continue to increase the company's net assets without increasing the total share capital, and evaluate the feasibility of market value management through share repurchase, cancellation and other methods in a timely manner.

In fact, HNA Holdings' predicament is not an isolated one, as penny stocks have been hit hard in the past two months as par value delistings have been frequent, causing their prices to plummet.

Up to now, there have been *ST Baan, ST Dima, ST Yili, ST iKang and other companies have been delisted or waiting to be delisted because the face value of less than 1 yuan for 20 consecutive trading days.

However, in comparison, the market value of HNA Holdings is still more than 40 billion yuan. As of March 31, the number of shareholders of HNA Holdings was close to 387,600, with 85,800 shares outstanding per capita and 117,500 yuan per capita.

At the same time, unlike the perennial losses of most companies on the verge of delisting, the performance of HNA Holdings has improved significantly in the past two years or so of Fangda Group.

It is understood that half a year after the introduction of Fangda Group, HNA Holdings achieved "star picking", in September of that year, ST HNA officially took off its hat and changed its name to HNA Holdings, marking the "new HNA" gradually out of the shadow of the past.

In 2022, as the first full year after Fangda became the owner, HNA Holdings' operation gradually moved on the right track, achieving a net profit of 591 million yuan in the fourth quarter.

In 2023, with the overall recovery of the civil aviation industry, HNA will take the lead in turning over. HNA Holdings made a net profit of 311 million yuan for the whole year, becoming the only airline among the four major airlines to turn losses into profits. Among them, the net profit in the third quarter was 2.495 billion yuan, setting the best performance in the peak season operation of HNA Holdings in history.

In the first quarter of this year, HNA Holdings' net profit continued to grow, reaching 687 million yuan, which has surpassed the level of last year.

However, HNA Holdings still has a heavy debt burden, and how to obtain sufficient funds to promote market value management has become the focus of investors' attention.

Debt is on the top

Freezing three feet is not a day's cold. Despite the favorable release of performance, various historical problems left over from the bankruptcy and reorganization of HNA Holdings have not been completely resolved.

First of all, HNA Holdings faces a heavy debt crisis. In 2020, the year when HNA Holdings suffered the most serious losses, the company's total liabilities reached 186.8 billion yuan, and the asset-liability ratio reached 113.52%, which has fallen into a situation of insolvency.

After Fangda Group became the owner, at the end of 2021, the total liabilities of HNA Holdings fell to 132.3 billion yuan, and the asset-liability ratio was still as high as 92.34%. In the past two years, HNA Holdings' debt ratio has shown a trend of rising again, and as of the end of the first quarter of this year, its asset-liability ratio was 98.46%.

Behind the huge debt, HNA Holdings' financial cost pressure is also more significant. In 2023, the financial expenses paid by HNA Holdings will be as high as 5.331 billion yuan, which is about 9% of the total operating income. In the first quarter of this year, the company's financial expenses were 1.201 billion, compared with -19.267 million in the same period last year, an increase of 1.22 billion year-on-year.

At the same time, HNA Holdings' book funds are not abundant. As of the end of the first quarter of this year, HNA Holdings' monetary funds were 9.375 billion yuan, and the balance of cash and cash equivalents was 9.8 billion yuan. It is worth noting that the first quarter report of 2024 shows that the short-term borrowings and non-current liabilities due within one year of HNA Holdings totaled 15.4 billion.

In addition to the debt pressure, HNA Holdings has also experienced a significant reduction in passenger traffic.

In 2017, HNA Group experienced a liquidity crisis, and since then, it has continuously sold assets to recoup funds, including the disposal and sale of aircraft in addition to non-aviation assets and businesses such as finance and real estate.

At the end of March 2019, HNA was operating 474 aircraft, but by the end of the year the fleet had dropped to 361 aircraft. At the end of March 2024, HNA operated only 340 aircraft. In other words, compared to 2019, the size of HNA's fleet has decreased by 134 aircraft.

The downsizing of the fleet has a direct impact on passenger traffic. According to monthly operating data, HNA Holdings' passenger volume in the first quarter of 2024 reached 16.6787 million passengers, a decrease of 22.46% compared with 21.5101 million passengers in the same period in 2019.

In contrast, the other five listed airlines maintained positive growth compared to the same period in 2019 despite the difference in growth rate, which also means that in terms of passenger traffic indicators, these five listed airlines have returned to the rhythm of normal operation.

It is worth mentioning that HNA Holdings is also currently facing industry problems. It is understood that the shortcomings of the business model of the aviation industry have always existed, and it is difficult for enterprises to make stable profits in the long term. After all, airlines are not immune to the impact of fluctuations in crude oil prices and exchange rates, and it is very easy to get caught up in endless price wars.

For example, in 1998, Warren Buffett admitted that he bought American Airlines because it was cheap and did not think it was good business. Until 2020, Buffett's view did not change, and at that year's shareholders' meeting, he commented that the aviation industry is a very challenging and difficult industry. Now, if you buy again, the risk is even greater.

According to data recently released by the Civil Aviation Administration of China, in 2023, the total transportation turnover, passenger traffic, and cargo and mail transportation volume of the whole industry will all increase sharply year-on-year, recovering to 91.9%, 93.9%, and 97.6% in 2019, respectively, and the industry-wide loss will be 187.2 billion yuan.

However, according to the cumulative loss of 217.44 billion yuan in 2022 announced in the "2022 Civil Aviation Industry Development Statistical Bulletin", although the civil aviation industry will significantly reduce losses in 2023, it will still fail to turn losses into profits, and the whole industry will lose 28.8 billion yuan.

Fang Wei's pressure

It is understood that Fang Wei's entry into the aviation sector of Hainan Airlines cost a total of 41 billion yuan. After becoming the owner, Fang Wei injected 10.8 billion yuan of liquidity into HNA Holdings through private placement of shares.

The "real money" paid by HNA Holdings for "saving" also did not give Fang Wei much room to maneuver, and its "Fang Da Department" was also under a lot of financial pressure.

Therefore, at present, "Fangda Department" has pledged its shares in Fangda Carbon, Fangda Special Steel, Northeast Pharmaceutical, HNA Holdings, and ZTE Commercial, with pledge rates of 79.5%, 79.5%, 79.5%, 44%, and 79.5% respectively. Among them, Liaoning Fangda and Jiangxi University pledged 99.95% and 64.31% of the shares of Northeast Pharmaceutical respectively, totaling about 79.5% of the shares.

Judging from the data of the 2023 annual report, the cash flow of Fangwei's listed platforms is also not abundant.

Specifically, carbon and steel are the initial areas of Fangda Group, and the current operating entities of the two major businesses are Fangda Carbon and Fangda Special Steel, which are listed companies.

Among them, the 2023 annual report released by Fangda Special Steel shows that in 2023, the company's steel output will be 4.0828 million tons, the operating income will be 26.507 billion yuan, and the parent will be 689 million yuan, a decrease of 35.16% over the same period last year.

In 2023, Fangda Special Steel's actual remuneration to directors, supervisors and senior managers will only be 4.9553 million yuan, compared with 33.9931 million yuan actually paid by the company to directors, supervisors and senior managers in 2022, a decrease of 85.4%. In addition to the chairman's salary of 794,000 yuan, no one is even higher than 500,000 yuan.

By the end of 2023, 3.197 billion yuan of Fangda Special Steel's 6 billion yuan of monetary funds will be restricted assets. At the same time, Fangda Special Steel believes that in 2024, the international and domestic situation faced by the steel industry is still complex and severe, the growth momentum is insufficient, the supply problem is still prominent, and the company also needs funds to promote the implementation of the company's various plans, so Fangda Special Steel will only pay dividends of 233 million in 2023, and its dividends will reach 2.588 billion in 2021.

In addition to Fangda Special Steel, Northeast Pharmaceutical, a subsidiary of "Fangda Department", has also begun to reduce costs and increase efficiency.

The annual report shows that in 2023, the company's sales expenses will decrease by 11.76% year-on-year; financial expenses decreased by 478.84% year-on-year; R&D expenses decreased by 39.50% year-on-year.

In 2023, the number of employees in Northeast Pharmaceutical will drop to 6,214, a direct decrease of 1,612 from 2019 before the epidemic.

Thanks to cost reduction and efficiency increase, even though Northeast Pharmaceutical's revenue will decline in 2023, its net profit will still grow year-on-year.

It is worth mentioning that even though there is not much room for manoeuvre, Fang Wei has still opened the "buy, buy, buy" mode this year. Not only did it re-become the third largest shareholder of Juneyao Airlines in his personal name in the first quarter of this year, but Fangda Special Steel, a subsidiary of Fangda Special Steel, also planned to set aside 4 billion yuan in the next three years for the acquisition of Pinggang Iron and Steel and Dazhou Iron and Steel shares.

However, HNA Holdings, which is approaching the "red line of delisting" of 1 yuan, has undoubtedly sounded the alarm for Fang Wei. The past of the "HNA system" from rapid expansion to bubble bursting is vividly in my mind, warning that the "Fangda system" should be more cautious in the current complex and changeable market environment.