If corporate regulators in New Zealand and Switzerland can, why can’t Australia’s ASIC, ASX and Foreign Investment Review Board (FIRB) follow suit and question who exactly owns high profile Chinese conglomerate HNA Group which is said to control a 19% stake in Virgin Australia Airlines?
At the same time HNA has just paid $400 million for the refrigerated transport business of listed car dealer, Automotive Holdings, without a query from ASIC or the ASX as to just who is HNA. The deal still needs FIRB approval, so there is still time for at least one local regulator to find the courage that the Kiwis and Swiss have found to question HNA.
The two deals and their apparent waving through raise more queries, in the light of what NZ and the Swiss regulatory actions in relation to deals involving HNA in their countries in late 2017.
The questions arise after HNA lodged a total of five incomplete substantial notices with the ASX in the past 19 months which have failed to properly disclose how that stake in Virgin Australia is controlled.
HNA told the ASX on Tuesday that five substantial holder notices lodged between June 2016 and October 2017 in relation to its 19% stake in Virgin Australia had failed to include entities that hold a “relevant interest” in the airline.
Australian corporate law requires investors that control more than 5% of an ASX-listed company must notify the company and the ASX when they first obtain a holding of 5% or more and when they increase or decrease their holding.
This includes the disclosure of "relevant interest" – parties that can exercise influence over shares through ownership or other forms of control and power – that may be indirect or informal.
HNA’s latest disclosure to Virgin and the ASX, dated January 2, said it failed to include several relevant parties because of "an oversight".
HNA said all its companies in the "chain of ownership down to the entity directly holding [Virgin] shares" were disclosed but "sister companies of those entities were incorrectly omitted as they do not directly or indirectly have an interest in those shares but instead are deemed to have a relevant interest under the Corporations Act".
“HNA Group is committed to complying with its ongoing disclosure obligations in the Australian market”, HNA said in the ASX filings, which is an understatement to say the least.
HNA’s investment in Virgin was made through a Hong Kong listed entity called HNA Innovation Ventures, and the first notice of interest lodged in June 2016 listed six other groups that had a relevant interest in Virgin through a chain of ownership linking back to HNA Group and that two entities that own it.
By October last year the total number of groups with relevant interests had grown to 11, and the updated January 2 filing listed a total 15 parties with relevant interests.
Now we wait to see what ASIC and ASX do about the ownership confusion (we only have HNA’s word that these 15 companies have a relevant interest in the 19% stake in Virgin). After five attempts, a bit of scepticism should be in order.
Other regulators and governments are not so apparently accommodating about HNA’s opaque ownership as ASIC and ASX.
In December, New Zealand’s overseas investment agency blocked HNA’s proposed $NZ660 million ($600 million) purchase of ANZ’s UDC Finance business because it could not determine who would ultimately control the business. The Kiwi regulator said in December it had declined HNA’s proposed NZ$660 million ($US462 million) takeover of UDC, because it could not verify who controlled the group, which is based in southern China.
“The information provided about ownership and control interests was not sufficient or adequate for the OIO to determine who the relevant overseas persons are for [HNA’s] application to acquire UDC,” said Lisa Barrett, the office’s deputy chief executive for policy and overseas investment. “We were therefore not satisfied that the investor test in section 18 of the Overseas Investment Act 2005 was met.”
That followed a decision in November from a key Swiss regulator which blocked an attempt by HNA to take control of airport services group, Gategroup (https://www.ft.com/content/a5bdb554-d259-11e7-8c9a-d9c0a5c8d5c9). The Financial Times reported “Switzerland’s takeover watchdog said that Chinese conglomerate HNA provided “untrue or incomplete” information regarding its ownership when it acquired air services company Gategroup for SFr1.4bn last year.
"HNA has spent more than $40bn on overseas acquisitions during the past three years but the true ownership of the company is still shrouded in mystery. In recent months, regulators in China have also raised concerns over the level of leverage accrued by HNA and other aggressive corporate acquirers.
“The Swiss Takeover Board, citing several FT articles, has homed in on the declared holdings of two shareholders in the group, calling information that the company originally provided “untrue or incomplete”.
These statements raise the question of what do ASIC, the ASX and FIRB know about HNA’s ownership that gives them the security that the NZ and Swiss regulators could not get from HNA? We have already evidence that HNA has had difficulty with ownership itself insofar as its Virgin holding is concerned. That should be a red flag.
