International

In Wake of Coronavirus, China Gov't Takeovers Are Real Possibilities

Takeovers And Liabilities Loom Amid Coronavirus

Beyond the obvious health impacts of the Coronavirus outbreak itself, where hospitals are filling up and the death toll is mounting, costs of a different sort are looming.

Those mounting costs could make it challenging to meet ongoing operating goals, in a ripple effect that may extend well beyond supply chains, dependent as they are on people gathering together.

We’re referring to transport, of course – and tourism, sporting events and one-off gatherings that are now shuttering.

In one example, perhaps an extreme one, government takeovers may be in the offing.

To that end, in China, the government of the Hainan province is reportedly taking control of the conglomerate HNA Group, and will sell off some airline assets. The virus has hurt HNA’s ability to meet financial obligations, according to reports – the firm has made acquisitions worth tens of billions of dollars, but an increasing bet on aviation has left it exposed to a drop in flight activity and tourism tied to the virus.

The impact is not confined to China.

As reported this week, in the United Kingdom, the Financial Reporting Council, which oversees audit and accounting activities, said that firms and the auditors who sign off on their financial statements should disclose the risks (and presumably the financial impact, where applicable) of the Coronavirus – especially if they are linked to the region through trade or supply chains.

“Companies will need to monitor developments and ensure they are providing up-to-date and meaningful disclosures to their shareholders when preparing their year-end reports,” a spokesperson said, as reported by The Wall Street Journal.

In accounting terms, that means eyeing possible write-downs of assets, and “write-ups” of liabilities. One standout: Operating leases – tied to the real estate that is owned or is integral to a company’s daily activities – could be written down. It could also be the case that as supply chains are disrupted, such impact could be felt across international firms that are focused on manufacturing. In other instances, companies could vacate holdings and locations in Asia.

The Events

Then there’s the looming impact to companies and associations that stake their claim on, or derive significant revenues from, attendance. That includes airlines, of course, and hospitality firms. Marathons, perhaps, too. Consider the news that the Tokyo Marathon has been restricted to a few hundred “elite” runners, where once 38,000 runners were expected to compete in the March 1 event.

The cancellations beg the question as to whether insurance will foot the bill, or at least stanch some of the losses. In one example, this year’s Mobile World Congress (MWC) was slated to take place in late February. But it’s off now – and, as reported by Insurance Business America, the confab, which would have been held in Spain, may have a bit of a ripple effect. Many companies had backed out, and the sponsors may have to eat the costs. As reported by the site, having reviewed insurance documents, the organizer, GSMA, will “not be liable [to the sponsoring and attending companies] for any losses,” including those tied to communicable disease.

Separately, as reported in Associations Now, Seth Fleischer, business development professional at Aon Affinity, was quoted as saying that “if somebody purchased a policy prior to the outbreak of [the] Coronavirus and it had communicable disease as part of the coverage, then they could potentially be covered. Typically, communicable disease is an optional coverage that you can buy for an additional premium.”

We wonder how many firms may have been prescient enough to anticipate a pandemic that could dwarf SARS.

Fleischer went on to state that companies could face loss of revenues tied to refunds for attendees. There exists, too, the possibility that the Coronavirus might not be covered, and could be excluded from future insurance as a pre-existing condition.

On the one hand, event cancellation may get more expensive, and on the other hand, the most pressing event to be insured against – the Coronavirus – may not be covered. For many companies and verticals dependent on groups of people amassing, the ripple effects will be lasting.

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