Listing pioneer Zhejiang Glass faces bankruptcy

PUBLISHED : Monday, 18 April, 2011, 12:00am
UPDATED : Monday, 18 April, 2011, 12:00am


Zhejiang Glass, the first privately owned mainland company to join the Hong Kong stock market, may be plunged into bankruptcy and sold off to state-owned enterprises under plans drawn up by a local government and state-backed banks.

According to people familiar with the glassmaker's accounts, the company has 7 billion yuan (HK$ 8.3 billion) of bank debt compared to 4 billion yuan of assets.

The bankruptcy and sale plan drawn up by the Shaoxing authority in Zhejiang province along with China Mingsheng Bank and Huaxia Bank, has alarmed the IFC - the World Bank's private investment arm and the glassmaker's biggest independent shareholder.

Zhejiang Glass, which employs more than 5,000 people in the province, does not have any state shareholders. A senior official said: 'The reality is that local governments are wielding their influence. Shareholders are being sidelined and ignored.'

IFC, which so far has not been invited to take part in the talks being led by the Shaoxing government, is exposed to up to US$84 million of losses if the glassmaker goes bankrupt.

'IFC is trying to find a fair and transparent solution to the current situation that saves a good business and employment, while respecting the rights of creditors and shareholders,' a spokesman said. IFC has a 28 per cent stake in the company worth US$34 million and lent it US$50 million in May 2006.

The Shaoxing government, Minsheng Bank and Huaxia Bank have asked courts in Zhejiang and Beijing to approve their plan to reorganise Zhejiang Glass. They have also identified two state-owned enterprises to whom they wish to sell the private glass-maker's assets, according to people involved in the talks.

Raising fears Zhejiang Glass is being nationalised by stealth, the company has also lost control of its 71 per cent owned subsidiary, Qinghai Soda Ash, to the government of Haixi, in Qinghai province. Trading in the glassmaker's Hong Kong shares was halted in May after it failed to produce its accounts for 2009. That means it is unknown whether Zhejiang Glass is insolvent, or whether it could raise cash by selling new shares to investors or selling a stake to an international competitor keen to get a foothold in China.

It is also not guaranteed the plan to split its assets among state-owned enterprises would be done at a price fair to Hong Kong shareholders, or whether the Shaoxing government and mainland lenders plan to consult with Hong Kong investors on what could effectively be the forced nationalisation of a private firm.

While Zhejiang Glass retains its stake in Qinghai Soda Ash, the subsidiary is now being run by a restructuring committee composed of Haixi government officials, led by deputy governor Ma Jie, a Qinghai Soda Ash spokesman confirmed.

The change of control at Qinghai Soda Ash was not disclosed to the Hong Kong stock exchange.

A report carried by Xinhua in December said Zhejiang Glass had misappropriated funds from Qinghai Soda Ash and saddled it with 6 billion yuan of debts. The China Securities Regulatory Commission has been asked to approve the Shaoxing government and mainland lenders' bankruptcy plan for Zhejiang Glass, but has yet to make a ruling, people familiar with the situation said.

Hong Kong's Securities and Futures Commission had also been informed, but had yet to respond, they added.

Calls to Cheng Shulin, the Shaoxing official in charge of plans for Zhejiang Glass, were unanswered on Friday. Zheng Aimin, general manager of China Minsheng's investment department in Zhejiang, could not be reached. Ma Jie, of the Haixi government, also could not be contacted.

Zhejiang Glass was listed on Hong Kong's stock market in 2001. It was the first privately owned company from the mainland to join the exchange, according to news reports at the time and the firm's own website.

The senior Zhejiang Glass official claimed that while the company had yet to publish its 2009 or 2010 accounts, it made a 200 million yuan net profit last year. Qinghai Soda Ash was also profitable.

It is not unusual for mainland authorities to attempt to bring private companies under state control.

The government of Shandong is trying to force a merger of state-owned Shandong Iron and Steel and Rizhao Steel, the main vehicle of steel billionaire Du Shuanghua.


The IFC's loans to and equity in Zhejiang Glass, in US dollars: $84m