Some questions about the HNA Group

The HNA Group, a Chinese conglomerate that is the single biggest Chinese investor in the US, has been in the news quite a lot recently due to questions about its ownership. According to a Financial Times report, the other day, its management declared that 29.5% of its equity had recently been transferred from a mysterious Guan Jun (apparently a Chinese national) to a New York-registered charity called the “Hainan Cihang Charity Foundation.” Guan’s shares had previously been held of record by a Hong Kong-based businessman named Bharat Bhise. According to HNA Group CEO Adam Tan, “The [29.5 per cent] stake is our [HNA’s] own stake. For the whole time. They [Mr Guan and Mr Bhise] had just held the stake for us.”

According to Tan (as reported in the FT), the shareholding restructuring that replaced Guan Jun with Hainan Cihang simply made public the true state of HNA’s ownership:

“Originally, it has been outside China for tens of years. Because we are a private company, we don’t want to disclose our shares,” Mr Tan said. “But right now, we are so happy at 170 [on Fortune]. I think I trust the US government, I trust the Chinese government. I think it’s the right time to disclose the structures.”

Some quick thoughts and questions:

1. Is the Hainan Cihang Charity Foundation (HCCF) really a New York entity? It can’t be found on the New York Charities Bureau Registry Search website maintained by the New York State Office of the Attorney General. I even emailed them to be sure I hadn’t missed something, and they confirmed that no such charity is registered in New York. What gives? [UPDATE: See reader comment below, which answers this question.]
2. It’s odd that Tan would say that they haven’t disclosed their shareholding before now because they are a private company. HNA Group disclosed, or at least purported to disclose, its shareholding structure in August 2016 when it issued bonds. According to p. 26 of the bond prospectus, its most recent change of shareholding occurred in 2013, after which it was owned 70% by Hainan Traffic Management [rough translation] Holding Company Limited (海南交管控股有限公司) and 30% by Yangpu Construction and Transportation Investment Company Limited. Not only does this contradict Tan’s claim that HNA Group had not disclosed its shareholding structure before–the bond prospectus contains a detailed history of who has owned how much of HNA Group when–but it contradicts his claim that part of the equity ownership of HNA Group has been outside of China for decades. Unless I’m missing something (in which case please let me know in the comments), either Tan is wrong or the disclosure in the bond prospectus (made when he was CEO) is false. [UPDATE 7/28: There is a discussion on pp. 26-27 of the prospectus respecting the 70% that belongs formally to Hainan Traffic Management (HTM). HTM is 50% owned by a company called 盛唐发展（洋浦）有限公司 (Sheng Tang), and Sheng Tang is 65% owned by Hainan Province Cihang [Charity] Foundation (HPC). This is a Hainan entity, not the New York entity. Doing the math, this comes out to HPC indirectly owning 22.75%, which indeed is exactly the number that Adam Tan gave to the FT. Unfortunately, this doesn’t get us any closer to clearing up all the other discrepancies. In particular, Adam Tan appeared to be talking about formal share ownership, not indirect interest, since he talked about Guan Jun’s 29.5% stake even though he said Guan was just a cipher holding on behalf of others. But if he was talking about formal share ownership, then the 22.75% figure for HPC is not accurate, or at least not consistent with the disclosure in the bond prospectus. It may be that Tan is just being careless and not distinguishing rigorously and consistently between formal (nominal) share ownership and actual control. Thus, further digging into the share structure of all the companies mentioned in the prospectus might end up showing the percentages Tan gave to the FT. But if we’re talking about actual control and not nominal ownership, then we still need to know who actually controls, among other things, the two Cihang entities (the Hainan one and the New York one). So far we have no idea.]
3. If HNA Group really does have foreign ownership (the allegedly New York-registered HCCF is a foreign entity, remember), then do any of its activities in China violate China’s restrictions on foreign ownership in certain industries?
4. I note that HCCF fits the definition of “overseas NGO” in China’s Law on the Management of Domestic Activities of Overseas Non-Governmental Organizations (境外非政府组织境内活动管理法) (Chinese | English). This means that under Article 5, it is not allowed to “engage in or support for-profit activities”. What is holding stock in HNA Group other than engaging in for-profit activities? It’s a commercial enterprise.
5. What can Tan mean when he says that the 29.5% share is HNA’s “own stake”? That’s like saying a car can own a piece of itself. If the company declared dividends on its shares, who would the check be payable to? Article 142 of China’s Company Law forbids a company’s acquisition of its own shares, except in some limited circumstances not present here. If management can vote the shares, then obviously that 29.5% interest should be considered to belong to whoever tells management what to do, i.e., the controlling shareholder.

Comments welcome.