HNA denies embezzlement claims as it fights for control of Hong Kong Airlines

[April 19, 2019]   By Jennifer Hughes

HONG KONG (Reuters) - Embattled Chinese conglomerate HNA Group has denied accusations of embezzlement and financial irregularity made by a rival group of shareholders in Hong Kong Airlines (HKA) as the two sides fight for control of the struggling carrier.

The allegations were made by Zhong Guosong and Frontier Investment Partner who between them control 61 percent of HKA's shares. On Tuesday, they declared they had taken control of the carrier and made Zhong, a former HKA director, chairman after an extraordinary shareholder meeting.

The pair said on Wednesday, via a spokesperson, that an investigation had been launched into "the embezzlement of HKA assets and serious financial misappropriation by HNA Group parties."

In an emailed statement to Reuters on Friday, HNA said that the allegations "are false".

"HNA Group is committed to the highest standards of integrity in all of its activities and expects the same of all of its representatives," it added.

HKA's website still lists Hou Wei as chairman.

Hou joined HKA in September last year after more than four years with HNA-controlled Hainan Airlines, according to his LinkedIn profile.

HNA holds about 29 percent of HKA, having cut its majority holding two years ago.

This week's battle comes as HKA is struggling to survive. Earlier this month, airline executives told shareholders the company needed at least HK$2 billion ($254.95 million) to avoid the risk of losing its operating license - and that it swung to a loss of about HK$3 billion last year.

The HNA Group logo is seen on the gate of HNA Plaza building in Beijing, China July 4, 2018. REUTERS/Elias Glenn

Zhong and Frontier representatives at that meeting, however, demanded details of the 2018 accounts and questioned the close ties between HKA and HNA affiliates, which include loans and equity investments by HKA to HNA groups, according to HKA's 2017 accounts seen by Reuters.

On Thursday this week, the two sides clashed again when Zhong and Frontier accused HNA of storming HKA's head offices and removing documents - claims denied by an HKA spokesperson.

HKA said later that day that the extra security staff visible in the lobby and foyer of HKA's offices were to preserve order that had been disrupted by the shareholder dispute.

On Thursday evening, Hong Kong's Transport and Housing Bureau said it had met with representatives for both sides and was monitoring the situation.

It added that the Civil Aviation Department had stepped up its oversight of HKA's flight operations to ensure no disruption over the holiday weekend.

(Reporting by Jennifer Hughes, Kane Wu and Julie Zhu; Editing by Himani Sarkar)

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