By: Toh Han ShihChen FengBig-ticket overseas acquisitions by private Chinese companies are unlikely for the foreseeable future after the imprisonment Chen Feng, a former chairman of HNA Group, a now-defunct private Chinese conglomerate that a decade ago splashed more than US$40 billion in snapping up foreign assets including stakes in Deutsche Bank, a Swiss airport retailer and the Hilton hotel chain only to be upended by evidence of overseas fraud and deceit. In January 2021, HNA declared bankruptcy in what the New York Times said was “the biggest corporate collapse in recent Chinese history.”A Chinese court recently sentenced the 72-year-old Chen to 12 years in prison, fined him RMB221 million (US$31 million) and confiscated RMB40 million of his assets, Caixin, a Chinese financial news publication, reported on July 18. Nor is he alone behind bars. In September 2021, police arrested Sun Mingyu, a former chairman of HNA’s supervisory board, and Bao Qifa, a former chairman of Hainan Airlines Group, formerly a key subsidiary of HNA. Both were sentenced to 3.5 years in prison each. Sun was fined RMB9 million while Bao was fined RMB4.5 million.“Private enterprises are dying in China. There is no chance that any private Chinese companies will do overseas acquisitions,” a professor told Asia Sentinel. Now that China is heavily in debt, Chinese President Xi Jinping or other Chinese leaders would never allow such a company as HNA to squander vast sums of money abroad, said the professor, who declined to be named.“No private company will get the authority from Chinese authorities to spend big on prestige projects abroad,” he said. “Most private enterprises are piling up big debt, and they are supervised by party apparatchiks, not adventurers like Chen Feng.”Beijing will still encourage overseas investment, but it will be more aligned with the Chinese Communist Party’s strategic objectives, said Andre Wheeler, CEO of Asia Pacific Connex, an Australian consultancy.Typically, it is the state-owned enterprises (SOEs) that carry out the Chinese government’s objectives.“HNA has had an amazingly fast path to becoming a mega-growth company, while also being a private company. I met HNA's top people in Beijing in the mid-2000s and their office location and stature was quite modest, while they were looking to lease aircraft. The access to capital and tax breaks in a highly regulated industry within a centrally-controlled economy could not have happened without assistance from government officials. I expect there were favors made and shortcuts allowed from officials who likely received a benefit,” said a source.“I was surprised how far they had come from the time I met them in Beijing in 2007 or thereabouts and where they were in less than a decade. It was eye watering as they were not a tech company where valuations skyrocket in a very short period. Their growth had to have been supported by either clever accounting or very easy and generous credit lines,” the source commented.Chen Feng and Wang Jian, both former Chinese officials, founded Hainan Airlines in 1993 in Haikou, the capital of Hainan province, which grew into the conglomerate HNA Group. On July 3, 2018, Wang, then a co-chairman of HNA, fell to his death of a wall in Provence, France, while taking photographs, according to French police. Later that month, Chen Feng became the sole chairman of HNA. Sun and Bao joined HNA’s board of directors in July 2018, weeks after Wang’s demise.Relations between Chen and Wang were not good, a Chinese source told Asia Sentinel.Wang was seen as the leading architect of HNA’s extravagant overseas acquisitions from 2015 to 2017, reported Caixin on July 17, 2018.Fraud in overseas dealsIn 2017, HNA increased its holdings in Deutsche Bank to 10 percent from 4.8 percent, becoming the leading German lender’s biggest shareholder at that time.In 2016, HNA acquired a 25 percent stake in Hilton Worldwide Holdings, the operator of Hilton hotels which is listed on the New York Stock Exchange, for US$6.5 billion and 100 percent of Ingram Micro, a US electronics distributor, for US$6 billion.On April 8, 2021, a Hong Kong company, Bravia Capital Hong Kong Limited, sued HNA and its former subsidiary, HNA Group North America LLC, in the New York Supreme Court after learning HNA was attempting to sell Ingram Micro without informing Bravia, breaching an agreement. HNA’s North American subsidiary was later renamed Palisades Member 2 LLC. Bravia provided services to HNA and its affiliates from 2011 to 2018.On July 2, 2021, HNA sold Ingram Micro for US$7.2 billion to US private equity firm Platinum Equity. HNA and its former North American subsidiary refuse to pay Bravia the US$10 million it was owed from that sale. On December 15, 2023, the New York Supreme Court entered judgment against HNA’s former North American subsidiary for $13 million.Various entities of HNA purchased shares of Swiss airport retailer Dufry from 2017 onwards, before selling these in January 2019. During this period, HNA held a cumulative stake amounting to as much as 21 percent. In August 2017, for instance, HNA bought a 16.2 percent stake, estimated to be worth US$1.4 billion, from two Singapore sovereign wealth funds, GIC and Temasek. On September 25, 2019, the Swiss Financial Market Supervisory Authority (FINMA) said in a press release that HNA “repeatedly provided false reporting” of the beneficial owners of HNA’s former stake in the concern.During this build-up and reduction of HNA’s stake, the beneficial owners were repeatedly reported incorrectly, said FINMA. HNA consistently cited the China-based Hainan Province Cihang Foundation as the beneficial owner of the Dufry stake rather than Chen and Wang.“However, these Co-Chairmen, Feng Chen (Chen Feng) and the now deceased Jian Wang (Wang Jian), retained wide-ranging powers of control, and together bore the greatest economic risk in connection with the Dufry stake as a result of their indirect holdings in HNA Group (14.98 per cent in each case). Accordingly, the six reports submitted (by HNA) to the Disclosure Office of SIX Swiss Exchange between April 2017 and February 2019 were incorrect,” said the FINMA press release.FINMA concluded that Chen and Wang held joint control over the Cihang Foundation until Wang’s death on July 3, 2018, said a FINMA report on September 25, 2019.Sun was the chairman of the Hainan-registered Cihang Foundation, which took over Wang’s 22.8 stake in the company after Wang died. The charity held 22.8 percent of HNA, according to a company disclosure in 2017.“It is easy to acquire and then park wealth in a large variety of real property around the world and hidden in structures that are ostensibly contrived for tax efficiency, but in reality were designed to hide true ownership,” said the source. “It’s a virtual certainty HNA is or was backed by very powerful people in China who have a strong interest today to ensure their involvement remains hidden.”In October 2021, the Hainan High Court approved the HNA restructuring, involving US$111 billion in debt and more than US$40 billion of assets including airports, an office tower in New York, and a villa in Hong Kong. In December 2021, a Chinese conglomerate, Liangda Fangda Group Industrial, took over HNA’s core aviation business including Hainan Airlines.Billions of US dollars were found missing from HNA, Asia Sentinel reported on February 3, 2021.“This lack of robust financial modelling at the altar of brand China created avenues for fraud and corruption,” Asia Pacific Connex’s Wheeler commented.Toh Han Shih is a Singaporean writer in Hong Kong and a regular contributor to Asia Sentinel