Insider dealing probe into Rongsheng boss sinks Norwegian asset deal

PUBLISHED : Wednesday, 12 September, 2012, 12:00am
UPDATED : Wednesday, 12 September, 2012, 2:01am

A proposed multibillion-dollar investment in an important shipping asset in Norway has collapsed, partly because of growing concerns over a potential Chinese buyer who is at the centre of an insider trading probe.

People close to the situation said that earlier this year China Rongsheng Heavy Industries Group Holdings formed a consortium with the state-owned China Merchants Group and other parties to bid for the asset. An American investment bank was hired as an adviser.

Rongsheng is the mainland's biggest private shipbuilder, of which Zhang Zhirong is the founder and controlling shareholder.

Zhang is at the centre of an insider trading investigation involving a recent overseas investment by CNOOC, the country's largest offshore oil producer.

CNOOC, which is also a big and powerful state-owned enterprise like China Merchants, is not involved in the Norwegian deal.

The sources declined to name the shipping asset in Norway but said it included a major shipbuilding plant.

The talks went smoothly initially as Rongsheng and China Merchants wanted to show how Chinese private and state-owned companies could work together to acquire overseas assets.

However, the talks faded when it became known Zhang was involved in an insider trading probe by the US Securities and Exchange Commission on a separate deal.

China Merchants then decided not to go ahead alone, the sources said.

China Merchants was founded during the Qing dynasty by then prime minister Li Hongzhang as China Merchants Steam Navigation.

In July, the SEC said traders at Well Advantage made more than US$7 million because they had prior information about the proposed CNOOC-Nexen deal. Well Advantage is registered in the British Virgin Islands and wholly owned by Zhang.

Also in July, CNOOC unveiled a plan to acquire Canada's Nexen in a deal worth more than US$15 billion. The deal is still awaiting clearance and approvals from shareholders and regulators. If successful, it will be the biggest-ever overseas acquisition by a Chinese company.

"The Norwegian deal collapsed for various reasons but Zhang's case certainly had a very negative impact on the negotiations," said one of the sources, referring to the SEC investigation.

"The image of Chinese investors is bad now. Honestly, if I were the seller, I would think twice, too."

Zhang is ranked by Forbes magazine as one of the richest men on the mainland, with an estimated personal wealth of US$2.6 billion.

Last month, people familiar with the case said he wanted to avoid a fine by cutting a quick deal with the SEC to forfeit the profit the commission alleges he made from the Nexen stock.

CNOOC chairman Wang Yilin said last month the company had conducted an internal inquiry into an alleged leak and would give the information to the US regulator.

No result has been announced yet.