Chinese acquirers around which ownership questions have swirled include the conglomerate HNA Group Co. The Swiss Takeover Board found in November that when HNA bought a Swiss airline-catering firm called Gategroup in 2016, HNA failed to disclose that two of its owners held their stakes on behalf of HNA’s co-founders. HNA said it respected the Swiss board’s authority.
“Many companies in China mistakenly believe that extreme secrecy is a form of discretion,” said Abel Halpern, a former partner of U.S. private-equity firm TPG who is setting up a business to advise Chinese companies investing outside China.
“Such activity can put a black mark on Chinese capital as an asset class,” Mr. Halpern said. “If people believe Chinese capital is tainted by deliberately opaque structures, then such capital is viewed with suspicion and mistrust.”
In China, tracing ownership of companies can be complicated by a practice called guanxi, the cultivation of relationships and unwritten favors. This can come into play when wealthy Chinese purchase international assets as a way to move money overseas without their government’s knowledge, said lawyers and bankers familiar with the practice.
Because of the risk that acquisitive companies with unclear ownership could be conduits for money laundering and tax evasion, the U.K. in 2016 published an open register of companies’ beneficial ownership. European Union countries agreed in December to create public registries listing such information. Three bills in the U.S. Congress would require companies to disclose their beneficial owners.
Nine of 10 senior executives said it was important to know the ultimate owner of companies they do business with, in a 2016 survey of 2,800 executives in 62 countries by EY (formerly Ernst & Young).
“If legitimate companies like J.D. Power are being bought up or interacting with anonymous companies, it opens the door to increased liabilities about which we have no idea,” said Gary Kalman, executive director of the Financial Accountability & Corporate Transparency Coalition, a Washington-based nonprofit that campaigns against corruption.
Goldman Sachs Group Inc. won’t advise XIO because of concerns about how it is funding deals, according to a person familiar with Goldman’s decision-making.
The spokesman for XIO said it works with “the most reputable global investment banks” and hasn’t asked Goldman to advise on an acquisition.