Of all the mysteries surrounding HNA Group Co., one of China’s most acquisitive companies, the 29 percent stake held by Guan Jun has been among the most puzzling.
How did a little-known Chinese investor become the biggest shareholder in a sprawling global conglomerate with USD150 billion of assets and major stakes in Hilton Worldwide Holdings Inc. and Deutsche Bank AG?
This week, HNA watchers finally got some answers. But what they learned has raised fresh questions about the company’s governance and ownership structure at a time when it’s facing heightened regulatory scrutiny in the U.S. and China.
It turns out that Guan never intended to retain control of the stake that HNA had attributed to him in corporate filings late last year. He was holding it on behalf of HNA executives, people familiar with the matter told Bloomberg on yesterday. This year, Guan distributed the entire position to five individuals and a foundation affiliated with HNA, one of the people said.
Guan’s transactions, along with subsequent donations by the five individuals, resulted in a new shareholding structure unveiled by HNA on Monday. The company is now controlled by two affiliated charities – one in New York and the other in China. The rest of the business is split between Hainan Airlines Holding Co. and twelve HNA officials, including founders Chen Feng and Wang Jian.
While the disclosures from HNA have given the public more information, Monday’s announcement does little to address a longstanding concern about the company: Outsiders struggle to understand how the business is managed and how it interacts with shareholders, said Lyu Pin, a credit researcher at Citic Securities Co. in Beijing.
“The disclosure does more to raise questions about some of its largest shareholders than to answer questions about its ownership structure,” Lyu said.
Among the biggest remaining mysteries: Who’s in charge of the charities that now own a controlling stake in one of China’s most prolific overseas dealmakers? And why did HNA executives park their shares with Guan in the first place?
Those questions could hang over HNA as the company tries to assuage unease among regulators, lenders and investors around the world.
U.S. officials are said to be reviewing HNA’s purchase of the hedge-fund firm founded by White House communications director Anthony Scaramucci, while the European Central Bank is considering a review of the company’s stake in Deutsche Bank and Chinese regulators are assessing the risks posed by HNA and other active acquirers to the nation’s financial system. Some of the biggest U.S. and Chinese banks have distanced themselves from the company. The dollar bonds of HNA Group International Co., an offshore unit of the conglomerate, are trading near record lows.
Little is known about how HNA’s philanthropic organizations are managed, or how votes related to its shareholdings are cast.
HNA, which has taken on at least $73 billion of debt to fund its global acquisition spree, said it plans to update its ownership status annually and that executives plan to donate all their shares to the charities should they resign or die. Eventually, the company expects the foundations to own 100 percent of the group.
For Citic Securities’ Lyu, HNA needs to do a better job explaining how its new owners will influence the business, which has grown more complex in recent years as the company expanded beyond its roots as Chinese airline operator.
“It’s a complicated company,” Lyu said. “There is still not enough information.” MDT/Bloomberg
