Shenzhen tycoon Yao Zhenhua barred from insurance industry for 10 years

Property tycoon behind attempted hostile takeover of China Vanke becomes the latest ‘financial croc’ to fall foul of regulators

PUBLISHED : Friday, 24 February, 2017, 7:15pm
UPDATED : Friday, 24 February, 2017, 10:59pm

Yao Zhenhua, the property tycoon whose hostile takeover attempt last year of China Vanke led to widespread soul-searching in the country about audacious acquisitions, has been banned from working in the mainland’s insurance industry for 10 years.

Foresea Life Insurance, a unit of Yao’s Baoneng group of companies, was found to have provided “fake materials” and “violated rules for using an insurance fund”, the China Insurance Regulatory Commission (CIRC) said in a statement on its website.

The insurer will have its online business suspended, as well as applications to launch new products and trading in its stocks.

The latest judgement by the authority is a huge blow to the company’s tussle for control of China Vanke, formerly the nation’s biggest property developer.

Nobody from Foresea Life was available to respond to questions, and a spokesperson from Vanke declined to comment.

It is likely that the regulator is making an example of Yao to warn other tycoons
Dayton Wang, Guotai Junan International

Yao, 47, a generally low-profile figure, came under the spotlight after launching an unsolicited bid to take control of Vanke through Foresea’s owner, Baoneng Group.

Baoneng was roundly condemned by Chinese regulators after it funded the purchase of 43 billion yuan of Vanke’s shares through insurance premiums generated by Foresea’s universal life insurance product.

Dayton Wang, an analyst with Guotai Junan International, said Yao seems to be the latest “financial croc” to fall foul of a fierce crack down by China’s financial regulators. He was echoing earlier uses of the term financial “croc” made by CIRC chairman Xiang Junbo and his counterparts at the China Securities Regulatory Commission (CSRC) to refer to what they see as corporate raiders.

“It is very unusual for the CIRC to directly revoke a personal qualification of the chairman of an insurance company, when it comes to punishment to wrongdoings,” Wang said.

“It is likely that the regulator is making an example of Yao to warn other tycoons.”

Jerry Li, an insurance analyst with China Merchants Securities, said “Yao’s Foresea Life is a typical example of the chaos in China’s life insurance market”.

Using short-term, high-cost financing product to make long-term investments could bring systemic risks to the sector and did a bad demonstration to other insurance firms, he said.

Li said Foresea Life is likely to make a loss after its universal life business called off by the regulator, which contributes 80 per cent of its premiums.

China’s financial regulators including the CIRC and CSRC have strongly criticised outsized acquisitions, hostile takeovers and aggressive raids on companies in China and Hong Kong supported by funds raised through life insurance products similar to high-yielding asset management vehicles.

On Wednesday, CIRC chairman Xiang Junbo said during a press conference in Beijing that the regulator “will never allow the insurance industry to be turned into a rich boys’ club,” or let it become the sanctuary or war chest of corporate raiders, buyout artists and so-called “financial crocs.”

CIRC suspended sales of Foresea Life ’s new universal life insurance policies — non-traditional insurance policies with shorter terms and higher yields that are mainly used for investment purposes - in December, and sent an investigation team to the life insurance unit of Baoneng.

According to Forbes China’s rich list, Yao skyrocketed to 10th position in 2016 from 84th a year earlier, with a net worth of US$8.5 billion, after buying into Vanke and becoming its largest shareholder.

The CSRC also appears to be cracking down on so-called “crocs”.

Xian Yan, a senior executive of Shenzhen-listed Guangxi Future Technology, was fined 3.47 billion yuan for manipulating the stock price and wrongdoings in information disclosure, according to a press release put out by the CSRC on Friday.

Xian and 10 other company executives were also barred from entering the securities market for violation of rules, the announcement said.

Xian is the second executive to receive a formidable fine from the stock regulator. Xu Xiang, the legendary former fund manager, was fined 11 billion yuan by a court in the eastern city of Qingdao, mainland media reported on January 23.

The fine was the largest ever imposed in China for a financial misdemeanour.