December 9, 2022

Police Arrest HNA Bosses on Suspicion of Crimes

Chinese police have taken away HNA chairman Chen Feng and CEO Adam Tan on suspicion of crimes. The two men were summoned by the police for questioning yesterday, but they refused to show up. A few hours later, the company released a statement that said that both had been arrested by Beijing Public Security Bureau.

HNA Group is one of the most active Chinese companies on M&A market in the past two years. Now it looks like these acquisitions might have to be followed up with high-profile arrests.

The crimes Chen Feng and Adam Tan are suspected of range from insider trading to illegally taking assets out of Hainan Airlines, which was founded by HNA Group.

In the past 45 days, Chinese regulators have arrested a number of senior executives from large companies on suspicion of economic crimes. In July, Sun Zhengcai, the politician considered to be a strong contender for promotion in 2017 was arrested on suspicion of taking bribes.

HNA had been planning an initial public offering (IPO) of its Hainan Airlines unit in the second half of 2019. Now it looks like these plans might be at risk.

HNA, which started out as a regional airline and expanded quickly to become one of China’s biggest conglomerates, has been facing financial troubles since last year after shifting too aggressively from its core business and borrowing heavily in the process.

HNA has grown rapidly over the last two decades and now owns assets that include real estate, hotels and financial services firms. It’s currently in talks to sell a stake in its hotel division to Chinese property developer Sunac. The company is reportedly seeking fresh funds from investors at home before it can get approval from regulators for the IPO.

CEO Adam Tan was appointed in 2015 and has been tasked with cutting off unprofitable businesses and focusing on HNA’s core aviation and tourism assets.

Chairman Chen Feng, who is also CEO of Hainan Airlines, joined the company in 1993 after quitting his job as a pilot. He oversaw the group’s expansion into various businesses and even became a billionaire in the process.

HNA’s troubles go beyond money problems; there are also governance issues that could potentially lead to problems with regulators as well as attract unwanted attention from China’s anti-corruption watchdog.

Chen Feng and Adam Tan might not be the only ones arrested, but they certainly will become the most high-profile arrest over the past few months.

Chairman Chen Feng and Chief Executive Adam Tan were taken away by Chinese police for questioning on suspicion of economic crimes after they failed to answer earlier summons, said the people.

Chen and Tan didn’t respond to repeated calls by Bloomberg News outside office hours for comment in recent days. HNA’s general counsel (GC) in New York declined to comment further, while the GCs in China did not immediately respond to inquiries from China Money Network.

Both Chen and Tan have been placed under “coercive measures, including summons by force”– a legal term in China — the people said. The move is similar to being taken into custody or arrested, they added.

HNA was founded in 1993 as one of the first private airlines in the fast-developing country. It quickly expanded its business into many others — from logistics to financial services, tourism and health care — by acquiring more than US$40 billion of assets.