Reading the fiasco of Ping An Insurance (Group)'s share placement scheme, I can't help but wonder why a proven manager like Ma Mingzhe, who has built the insurance empire from scratch, would get himself into it.
With its proposal to raise up to 160 billion yuan (HK$175.36 billion) - the largest placement proposal by a mainland company - Ping An has been named the culprit for the recent collapse of the A-share market. Mr Ma is called 'the greedy chief executive officer' and the securities regulator has been forced to issue a statement warning against 'malicious fund raising'.
Is Mr Ma that stupid in ignoring the market appetite and the potential repercussion?
I know no insiders in this case. But after local bankers and corporate executives briefed me on the mainland's secondary fund-raising system, the answer has become crystal-clear.
'The market response has rarely been the primary concern of any mainland corporation in raising money in the domestic market,' one banker put it neatly.
Find this hard to understand? Let's do it step by step.
Now imagine you are a chief executive looking for five billion yuan to build a production plant. Your banker insists lending is impossible given the tight loan quota imposed by the government under the ongoing austerity drive.
So you convince the board to turn to the stock market. You come up with a relatively detailed investment plan in order to convince investors to chip in their money.
You then call investment bankers to gauge the market appetite and adjust your placement size and pricing accordingly.
You will kick off the placement within the next six hours. The money will be sitting in your company account within the next 48 hours.
Not on the mainland. To do a placement, you have to wait for one month to get the mandate from the shareholders meeting. That's fine. Given the dominance of state shares, shareholders' approval is not too difficult to get.
Dilution concerns of majority shareholders can be addressed by an expensive asset injection later.
But then you will have to get approval from the China Securities Regulatory Commission. This will take time to arrive, ranging from six to 15 months depending on your and your firm's political clout.
No one knows why it takes that long. Perhaps 'the prolonged waiting and begging gives the official a sense of power', explained one mainland corporate director.
By the time you get the green light, market conditions would have already changed. With these game rules, what will you do?
Will you still bother with a detailed and convincing investment plan? Will you still bother to tailor a market-acceptable placement size and pricing? Obviously not.
Instead, you will throw in a placement application the minute your company meets the official criteria of secondary fund raising (i.e., three years of consecutive profit-making and dividend-paying record), even though you may not have an urgent capital need. This is because you will never know when the regulators will nod their heads.
Instead, you will ask for 10 billion yuan even though you don't need that much. This is because you will never know what size the regulator will approve.
Instead, you will spend your time and money wooing the regulators into giving you their informal consensus before you tell shareholders and to get the official green light as soon as possible.
This is because, to quote the chief executive of a Shanghai-listed firm, 'the regulator, not the market, is the key factor that determines whether you can get the money'.
After all, in a country where investment instruments are scarce and where a public offering can easily attract three trillion yuan, selling shares has never been difficult.
Mr Ma isn't stupid. He is just playing by the rules.
Ping An's placement scheme is just a 'bigger and more brutal' version of what has been going on in the mainland stock market for years.
It is only asking for as much money as possible to prepare for aggressive shopping trips overseas where financial assets are on sale at only half of the insurer's valuation. For the management, this is in line with the company's interest and Beijing's 'going-out' policy.
(As a matter of fact, property developer China Vanke, which raised 10 billon yuan in a share placement late last year, has just told its shareholders that 10 per cent of the proceeds will now go to replenish working capital instead of the designated project.)
Similarly, if Ping An delays and scales down its placement as rumoured, it is the regulator speaking, not the market.
How can we ask for responsible financial decisions if that's the case? Ping An will only be another big name in the so-called 'malicious fund-raising' scandals that date back to the 2000 bull market and will extend into the future.