Lack of Disclosures Raises Questions About Who Controls Chinese Conglomerate


Questions about the ownership and corporate structure of the HNA Group, one of China’s biggest ” and most acquisitive” companies, are mounting, prompting scrutiny by regulators in the United States and Europe and leading at least one Wall Street bank to step away from it.

The mystery surrounding HNA is illustrated by its relationship with a New York-based company, the Pacific American Corporation.

HNA has previously said that PAC, as it is known, is an independent company that purchases engines, spare parts and other airline equipment for HNA’s subsidiary, Hainan Airlines. HNA has said that it has no ownership stake in PAC.

Previously unreported corporate documents reviewed by The New York Times show a closer relationship. PAC is run by the son and younger brother of HNA’s co-founder and co-chairman, Chen Feng, and was once controlled by HNA.

The younger brother of HNA’s co-chairman was also instrumental in helping create the initial ownership structure of HNA Group, these records show, through the use of entities set up outside China, in Hong Kong and the Cayman Islands. These offshore companies effectively obscured the control wielded by top executives and their relatives.

The lack of such disclosures in HNA’s regulatory filings may have violated China’s securities laws on “connected” transactions, two experts in Chinese law say. The omissions are likely to raise more questions about who ultimately controls HNA, a private company that in recent years has spent more than $30 billion acquiring stakes in global companies like Hilton Hotels and Deutsche Bank.

HNA declined to comment for this article.

Not disclosing such connections could heighten the scrutiny in the United States and Europe, where HNA is seeking approval to acquire major foreign assets. One Wall Street bank, Bank of America, has said that it will no longer do business with the Chinese conglomerate because of concerns about its opaque corporate structure, among other things, according to an internal email.

No regulator in the United States, Europe or Hong Kong has accused HNA of any misconduct.

HNA’s relationship with PAC is significant because it helps explain how the company runs its global operations and also offers clues about who ultimately controls a $100 billion conglomerate that has substantial backing from China’s state banks.

Its ties to the company are documented in court records in the United States, a regulatory filing in Singapore and online sources, including LinkedIn. For example, two of HNA’s senior executives in the United States ” Daniel Chen, the son of Chen Feng, HNA’s co-chairman, and Chen Guoqing, the younger brother of that same co-chairman ” say they have worked simultaneously for HNA and PAC, as vice chairman and chief executive, according to online biographical sketches. (Members of the Chen family could not be reached for comment.)

And in two different court cases involving HNA’s subsidiary, Hainan Airlines, company executives and longtime business partners have acknowledged, under oath, that PAC was at one time an affiliate of HNA or its subsidiary, Hainan Airlines.

“Hainan Airlines is an affiliate of Pacific American Corporation,” Zhu Yimin, the chief executive of Hainan Airlines said in a 2004 statement submitted in a bankruptcy case, Dornier Aviation v. Hainan Airlines. “Hainan Airlines and Pacific American Corporation share a parent company, Hainan Group Co. Ltd.”

In recent years, Pacific American has acquired two residential properties in One57, a luxurious Manhattan high-rise overlooking Central Park, for about $50 million apiece, according to deed documents.

A review of corporate filings indicates that many of the deals between HNA and PAC have not been disclosed in regulatory filings of HNA’s listed companies or in public filings that accompanied HNA’s bond offerings to Chinese or foreign shareholders.

Nor has HNA revealed the involvement of family members of HNA’s co-chairman, Chen Feng, in PAC, a company that has often been described in regulatory filings by HNA as a lender and purchasing agent.

Corporate governance experts say this is a poor way to operate because of the potential for conflicts of interest.

“When you’re an investor, you’re entrusting your money to someone and so one of the things you want to know is whether they’re taking care of your money,” says Nell Minow, a longtime authority on corporate governance. “Investors want to know whether some of their money is going to companies run by relatives. And if a company sets up a structure to obscure this, it’s an even bigger red flag.”

At PAC, one of the top executives is Chen Guoqing, 61, the younger brother of HNA’s co-chairman, Chen Feng. In the early 1990s, around the time the older Mr. Chen was setting up Hainan Airlines as a joint stock company, his younger brother began registering a series of companies in Beijing and Hainan Province that would soon do business with the airline.

Even before George Soros, a billionaire, made a large investment in Hainan Airlines, Chen Guoqing moved to the United States to set up the Pacific American Corporation (originally called Hainan American) to help the fledgling Chinese airline buy engines and spare parts in the overseas market. According to a contract filed in a federal court, PAC was the exclusive overseas purchasing agent for Hainan Airlines, taking a 1.5 percent agency fee.

PAC quickly struck deals with some of America’s biggest aircraft makers and parts suppliers, including Boeing and Honeywell. And as Hainan Airlines grew from a state-backed airline into a sprawling conglomerate, with airports, hotels, shipping and logistics services, PAC began venturing into other businesses, including managing corporate jets, investing with HNA in a Chinese leasing company and selling a European hotel chain to HNA, according to regulatory filings in China and Singapore.

In New York, Chen Guoqing set up an office at the World Trade Center, and bought an apartment in Trump International Hotel and Tower Condominium in 1997, through PAC. He also joined some of the city’s leading arts and cultural organizations, including the Lincoln Center for Performing Arts and the Asia Society. More recently, he joined the board of trustees of Brown University.

In his biography on the Asia Society website, he is called a co-founder of Hainan Airlines, and vice chairman and chief executive of PAC, “a subsidiary of HNA.” (A spokesman for HNA has previously disputed that PAC is a subsidiary of HNA.)

Corporate records filed in the Hong Kong Companies Registry, and with China’s State Administration of Industry and Commerce, show that he also played a crucial role in helping the senior executives at Hainan Airlines make the transformation from leading a state-backed airline to gaining a majority stake in what soon became a much larger, privately held conglomerate called the HNA Group.

To get there, Mr. Chen set up a series of offshore companies with a small network of relatives, longtime business partners and HNA executives, according to the corporate filings. The entities they set up, in Hong Kong and the Cayman Islands, with names such as Headstreams Investment and Tang Dynasty Development, soon gained control over a large stake in the HNA Group. The roles of the company’s top executives and their relatives were effectively hidden behind a series of foreign-owned companies outside of China, according to corporate records reviewed by The Times.

The group that set up the offshore entities included HNA’s current chief executive, Adam Tan, who once worked for PAC; Daniel Chen, the son of HNA’s co-chairman, Chen Feng; Chen Guoqing; and George F. Meng, who has worked at PAC.

After the HNA Group went on a frenzied buying spree, spending billions of dollars on global brands, a large portion of those offshore holdings ” now estimated to be worth about $20 billion ” were transferred from a group affiliated with HNA top executives to a private businessman named Guan Jun.

HNA, through a spokesman, declined to speak on the identity of Mr. Guan, who could not be reached for comment. Recently, though, the company announced that Mr. Guan had donated all of his shares to a newly created New York-based charitable organization set up by HNA called the Hainan Cihang Charity Foundation.

Mr. Tan, HNA’s chief executive, told The Financial Times that these were HNA shares that the company kept offshore for decades and did not want to disclose.

He also called the 30 percent stake held by Mr. Guan, HNA’s “own shares,” noting that Mr. Guan and Bharat Bhise, a longtime adviser to the company, “had just held the stake for us. That’s why I can move the shares.”

A review of corporate records, in China and Hong Kong, holds only a few clues to Mr. Guan’s identity. He is a former business partner of Daniel Chen, the son of HNA’s co-chairman, Chen Feng. And the shares he held originated with two of the men who helped register Pacific American in New York: Chen Guoqing and George F. Meng.


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