Fosun ‘back to normal’ after company chairman Guo’s brief disappearance last year, says chief executive
Chinese conglomerate’s share price fell more than 10 per cent after rumours started circulating in December
The troubles that beset mainland-based conglomerate Fosun International late last year after the temporary disappearance of its founder and chairman, Guo Guangchang, are “completely and utterly over”, chief executive Liang Xinjun told the South China Morning Post.
“Chairman Guo was invited as a witness to assist an investigation,” Liang said. “Neither Guo himself nor Fosun have done anything related to illegal operation.
“After the case we have seen several major bond issuances approved by different government authorities, and successfully launched several initial public offerings on the A-share market. People in these matters are [acting] with the most sensitive political sense. They would not cooperate with Fosun if they are worried about us.”
Liang said everything at Fosun, a conglomerate focused on insurance business and global investments, was now “back to normal”.
The company’s share price dropped by more than 10 per cent from HK$13.34 in just a few days after December 10, when rumours spread saying Guo had been taken away by the mainland authorities for investigation.
Although it released a public announcement on December 11 saying Guo was only “assisting the investigation” and the matter would not affect the company’s normal operation, and although Guo reappeared and made several public speeches in the following weeks, investors were spooked after the disappearance of other mainland billionaires signalled they had become targets of the authorities’ escalating anti-corruption campaign.
Fosun terminated two potential foreign acquisitions – of Anglo-German banking group BHF and Israeli insurer Phoenix – after Guo’s disappearance, a rare move for an aggressive buyer that had been on a shopping spree, acquiring diversified global businesses including resort operator Club Med and a stake in luxury retailer Folli Follie.
Liang said the decisions to terminate the acquisitions were based “purely” on business considerations and Fosun would focus on “internal organic growth” this year, slowing down the pace of overseas acquisitions.
Following legendary American investor Warren Buffett’s strategy of using insurance capital to engage in value investing, Fosun now owns six insurers globally, providing long-term investable assets denominated in US dollars, euros, yuan and Hong Kong dollars.
“Our portfolio is already very diversified,” Liang said. “To improve it, we are looking for insurance assets denominated in Japanese yen, Australian dollars and yuan. But for the US and European markets, the current size is big enough.”
Liang said Fosun would soon announce a deal in Israel.
He said it was also considering conducting pre-initial public offering fundraising for its tourism business, repacking assets acquired in the past few years including Club Med, holiday planner Thomas Cook and circus company Cirque Du Soleil which were worth a net 8 billion to 9 billion yuan.
Fosun International’s revenue rose 27.6 per cent to 78.80 billion yuan (HK$94.28 billion) last year, generating a net profit of 8.04 billion yuan, up 17.3 per cent from 2014.
Although some investors have raised questions about the company’s profitability following its investments in a wide range of sectors, including tourism, health care, retailing, food processing, property, financial services and resources, Liang said he was confident Fosun would enjoy strong profitability in the longer term.
The cost of investable assets was declining in a low-interest-rate monetary environment, Liang said, and as long as it improved the total investment return, particularly for two US insurers acquired last year, the insurance business’ profits would continue to boom this year.
Fosun completed the acquisition of US-based specialty insurance group Ironshore and labour insurance firm Meadowbrook Insurance last year.
“Some people are concerned about China’s economy due to overcapacity and high leverage, but Fosun’s business has nothing to do with those problems,” Liang said. “Our earnings are of high quality and we will cash out more in 2016.
“People who challenge our profitability have failed to see the profit hidden in our net assets’ growth. In fact, we are considering selling part of our equity in internet applications this year, to realise profit and reduce the company’s gearing ratio.”
Fosun’s annual report showed net assets attributable to the owners of its parent, Fosun Holdings, reached 75.25 billion yuan last year, up 52.3 per cent year on year, while the compound annual growth rate of its net assets had reached 43.08 per cent in the past 11 years.
The company’s net gearing ratio was reduced to 69.3 per cent by the end of 2015, from 73.3 per cent at the end of 2014. Its average funding cost declined to 4.97 per cent from 5.61 per cent in 2014.