Xiao Jianhua

Sale of stake in insurer is first disposal in empire of missing Chinese tycoon Xiao Jianhua

Analysts say the sale of 25 per cent of Huaxia Life could be a sign that the authorities are acting on their pledges to safeguard financial stability

PUBLISHED : Tuesday, 21 November, 2017, 7:30am
UPDATED : Monday, 24 September, 2018, 3:17pm

A 25 per cent stake in Huaxia Life Insurance, a company indirectly controlled by missing Chinese financier Xiao Jianhua, has been sold, the first such sale in the tycoon’s sprawling financial empire since he disappeared 10 months ago.

Zhongtian Financial Group, a property developer controlled by billionaire Luo Yuping and based in the southern province of Guizhou, agreed to pay 31 billion yuan (US$4.67 billion) for the stake, it said in a statement to the stock exchange late on Monday.

The transaction indicates that China’s top regulators may be working through the process of untangling some of the financial webs spun by the country’s big dealmakers and asset buyers.

Liu Shiyu, the chairman of the China Securities Regulatory Commission (CSRC), spoke in February of the need to safeguard financial stability and expressed zero tolerance for market manipulation. He also pledged to look into takeover deals involving what he called “barbarians, monsters and big crocodiles”.

The Huaxia sale could be part of China’s “great unwinding”, according to Brock Silvers, managing director of Kaiyuan Capital, a Shanghai-based advisory firm.

“Over the last 24 months, Chinese debt obligations have skyrocketed, with the [central bank] strongly expanding credit, and well-known acquirers going on debt-fuelled global shopping sprees. In preparing for the 19th Party Conference, authorities realised how much risk these companies had taken on,” he said.

“Now that the new Xi administration is in place, it appears to be systematically encouraging or even compelling highly leveraged corporations to solidify their balance sheets.”

China’s stock market regulator vows to ‘capture’ more tycoons

In July, market sources said the authorities had urged Tomorrow Group, Xiao’s main investment vehicle, to sell controlling stakes in its financial institutions, as a way to rein in risks and to allow some early investors to exit for cash.

Tomorrow had set up an internal team to handle the sales, which would have included stakes in Huaxia Life Insurance, New China Trust Co, Bank of Weifang and Baoshang Bank, Reuters reported in early July.

Xiao owns direct and indirect stakes in more than 100 companies listed in Hong Kong, Shanghai and Shenzhen through a number of entities. The Tomorrow Group owns Baotou Huazi Industry, listed on the Shanghai exchange.

In September 2015, Huazi said it would raise 31.7 billion yuan to acquire 51 per cent of Huaxia.

The plan was put under regulatory review and did not progress, and Huazi said on Monday that it had scrapped the proposal following the offer for the stake from Zhongtian. Huazi’s shares tumbled by the daily limit of 10 per cent to 10 yuan in early trading on Tuesday.

Zhongtian will buy the stake from two of the biggest shareholders in Huaxia, Beijing Qianxishihao Electronics Tech and Beijing Zhongshengshiji Tech. The two owned 20 per cent and 13.4 per cent respectively in the insurer as of the third quarter, according to a Huaxia statement.

Xiao himself was last seen in the early hours of January 27 in Hong Kong, leaving the Four Seasons Hotel in a wheelchair with his head covered, accompanied by several unidentified people.

His disappearance has spurred widespread speculation that he has been caught in the dragnet of a government crackdown, which could be related to anything from graft and money laundering to exceeding banks’ lending rules.

Sources have told the South China Morning Post that Xiao is in mainland China helping the authorities with investigations, and that he may have regained the ability to communicate with his business associates.

Zhongtian Financial, of which tycoon Luo owns 44.9 per cent through an entity called Jinshiqi Holdings, reported a 12.9 per cent rise in 2016 profit to 3 billion yuan, according to publicly available information.