Banking & Finance

China’s missing financier placed a bet on Wanda’s privatisation, but will he show up to collect?

Entity controlled by missing tycoon Xiao Jianhua had pitched investors investing in Wanda’s privatisation deal, sources say

PUBLISHED : Friday, 28 July, 2017, 7:02pm
UPDATED : Monday, 24 September, 2018, 3:17pm

Xiao Jianhua, the financier who was plucked from his Hong Kong hideout and has been in the custody of Chinese authorities since late January, was an investor in magnate Wang Jianlin’s privatisation of Dalian Wanda Commercial Property, according to two bankers with knowledge of the deal.

Xiao’s investment, made through intermediaries and unknown to Wanda’s executives last year, underscores the intricate web of influence woven by the man who’s known as the financier to China’s elites.

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The relationship between Wanda Commercial and Xiao was forged in early 2016, when Wang -- then China’s wealthiest man, with businesses from cinemas to hotels and theme parks -- was raising funds to take his Hong Kong-listed Wanda Commercial private. The 62-year-old magnate wanted to transfer the listing of Wanda Commercial to the Shanghai bourse, where stocks were trading at 17 times earnings on average, more than double its valuation in Hong Kong.

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His bankers at China International Capital Corp. assembled a consortium of investors and lenders to come up with HK$34.45 billion (US$4.4 billion) in equity financing and loans.

The consortium would offer HK52.80 cash to buy up each share of Wanda Commercial, a 44.5 per cent premium over the stock’s last price on March 29 before the plan was unveiled last year, according to documents filed with the Hong Kong bourse.

Among the investors and lenders was an entity called WD Knight V, which committed to the equivalent of 16.95 per cent of Wanda Commercial’s H shares, the third-largest chunk of holdings among seven investors, according to filings. This portion would be valued at HK$5.8 billion.

WD Knight V is actually Pohua Hong Kong Investment Ltd, registered in the city on April 27 last year, a month before Wanda Commercial’s May 28 privatisation announcement, according to the Companies Registry and stock exchange filings.

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Pohua (保華) is in turn wholly owned by Cayman Island-registered Pohua JT Private Equity Fund LP, which calls itself an investor in energy, consumer, retail and technology.

Pohua JT’s single largest shareholder, with 32 per cent, is Poly Longma Asset Management Co., Wanda Commercial’s exchange filings show. Poly Longma (保利龍馬 ) is a unit of the Poly Group, with businesses from military arms to arts and antiquities, owned and managed directly by China’s state asset management agency.

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Unknown to Wanda’s executives, the remainder of Pohua JT is linked to Xiao, according to two bankers familiar with the matter. Xiao had business dealings with Poly through Pohua,The Wall Street Journal reported on April 19, citing people familiar with the matter.

Wanda Group, Wang’s privately owned holding company, had no knowledge of Xiao’s role when the privatisation plan was announced in 2016, according to people familiar with the matter.

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Bankers and spokespeople at China International Capital declined to comment on Xiao’s involvement with Pohua. Li Haifeng, Pohua’s director in Hong Kong, could not be reached to comment.

Xiao, last seen leaving his Hong Kong hideout at the Four Seasons Hotel on the eve of the 2016 Lunar New Year, is somewhere in mainland China helping authorities with unspecified investigations, a source told the South China Morning Post .

Six months before disappearing, Xiao was pitching Hong Kong-based financial institutions the chance to join a fund which would put up the cash for Pohua’s investment in Wanda Commercial, promising returns of up to 8 per cent per annum.

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The fund was set up as a hedge against Wanda Commercial’s delisting and subsequent relisting, according to two bankers familiar with the pitch.

Wang had promised investors of his consortium that he would list Wanda Commercial on a mainland China bourse by August 31, 2018.

If the relisting were successful, Wang’s consortium investors will benefit from a doubling in the value of their holdings, while Xiao’s funders would get 8 per cent annualised returns.

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If Wang misses the deadline, he would pay every offshore consortium member the cost of buying the Wanda Commercial stock, plus 12 per cent per annum interest, while onshore investors get cost plus 10 per cent. Xiao’s take on the deal would be the 4 percentage point difference, according to the two bankers who heard the pitch.

A lot has happened since Xiao went missing. China’s government overhauled its three regulatory agencies in banking, securities and insurance, sacking the insurance regulator in early April for investigation into possible corruption.

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Several of the country’s biggest global asset buyers, including Wang’s Wanda Group, were placed under close scrutiny for their loans and acquisitions. The chairman of one of them, Wu Xiaohui of Anbang Group, was detained in June for investigations.

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Under the spotlight, Wang was forced last week to sell 77 of his hotels and a dozen theme parks for US$9.3 billion, in China’s biggest real estate sale.

The asset sale dims Wanda Commercial’s prospects of relisting on the mainland, so much so that Standard & Poor’s put its credit rating on negative watch, as the agency’s analysts wrote they were “unsure if such a sizable disposal may complicate and delay the listing timing.”

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Wanda Commercial’s shares last traded in Hong Kong on September 20, 2016 at HK$52.50. There are 13 months to go before the stock gets relisted on a China bourse.

If he misses his deadline, Wang will have to pay his investors cost plus interest. As a Cayman Island entity, Pohua stands to collect HK$5.8 billion plus 12 per cent per annum interest.

But will Xiao show up to collect on his bonanza?