As Hong Kong tycoon Vincent Lo and his Indonesian-born partner Leo KoGuan continue having problems completing their hotels in Shanghai Xintiandi, China’s state-owned HNA Group is said to be prepared to take over the project to prevent the unfinished buildings from embarrassing the city, which is organizing the 2010 World Expo.

HNA Group, a conglomerate with businesses across China in hotels, aviation and the logistics sector, is in advanced talks to buy an 85% interest of the twin-hotel project held under Leo KoGuan’s Leo Investment for 4 billion yuan ($580 million), or even more. Sources in Shanghai said HNA has to make an offer around mid-December and is expected to clinch a deal before New Year.

The two hotels--the HanTang Xintiandi and the Conrad Shanghai--are in Xintiandi, an upmarket and trendy landmark in the downtown Luwan district of Shanghai. The project is owned and developed by Shanghai Li Xing Hotel Limited, a joint venture 85% owned by Leo Investment in the U.S. and 15% held by Hong Kong billionaire Vincent Lo’s private flagship, the Shui On Group.

In February 2006 the joint venture appointed Jumeirah Group, which is renowned for its seven-star Burj Al Arab hotel in Dubai, to manage HanTang Xintiandi, a 338-room hotel. Two months later, the joint venture granted another contract to international hotel group Hilton to manage the 362-room Shanghai Conrad.

Both hotels were originally scheduled to open in 2008. Yet the construction was slowed down by the global financial crisis and eventually stopped late last year after 30 floors had been built for each hotel. Rumors were spreading around Shanghai that Leo Investment had failed to settle construction payments and that the project was waiting for new investors.

Earlier this month mainland media reported that HNA Group was interested in being the white knight to rescue the entire hotel project for a total of 5 billion yuan ($730 million)

It remains unclear whether Lo's Shui On Group will also sell out its 15% interest in the two hotels. A spokeswoman for Shui On Group in Shanghai refused to disclose Shui On’s latest plan for the twin-hotel or the potential HNA Group deal. "We are only an investor and we don’t know Mr. Leo’s arrangement on the development," said the spokeswoman, adding that she didn’t know whether the management contracts signed by Shanghai Li Xing with Hilton and Jumeirah are still effective.

Contrary to the undetectable background of Leo KoGuan, an IT tycoon who gained his fortune from a U.S. software company, HNA Group is high-profile and has been expanding quickly across China over the past year. According to its Web site, HNA Group owns nearly 50 hotels, 200 planes, 11 airports, two listed companies, 54 retail shops, and provides asset management as well as logistics services. HNA Group disclosed it recently has 120 billion yuan ($17.6 billion) in total assets.

Formed in 2000 and headquartered in Hainan Province, HNA Group first drew international attention in 2007 when it merged four of its airlines (Hainan Airlines, Shanxi Airlines, Chang’an Airlines and China Xinhua Airlines) to form Grand China Air, the fourth-largest airline in China and attracted billionaire George Soros to buy 18.6% of its shares.

In early November this year HNA was granted a two-year credit line of 39.8 billion yuan by China Development Bank. With sufficient funding on hand, a property subsidiary of HNA recently bought an office building in Shanghai’s Pudong New Area for nearly 1.5 billion yuan ($220.6 million). HNA also purchased Guangzhou’s Westin hotel and other properties from the financially strapped Hong Kong-listed company, Skyfame Realty.

In addition, HNA disclosed in October its plan to establish a ship-leasing company in Shanghai by the end of this year.