A plan by Chinese authorities to split up the business empire controlled by mysterious billionaire Xiao Jianhua has run into difficulties after the group and potential buyers disagreed on the prices of key assets, according to public corporate filings and sources who are close to those deals. Beijing has ordered Xiao to divest about 150 billion yuan (US$23.9 billion) worth of assets in 2018 to repay bank loans, the South China Morning Post reported last month. Xiao had already divested about 100 billion yuan the previous year. As a result, Tomorrow Group, the flagship corporate vehicle of Xiao, and its hundreds of affiliated entities, have been putting its stakes in banks and trust firms on sale in an act of “self-rescue by downsizing”, sources told the Post . Missing Chinese tycoon Xiao Jianhua ‘could face trial soon’ “The end game is to have a transparent structure that regulators can ‘see through’,” said one of the sources, who has been involved in the divestment deals. “Tomorrow Group will have just one bank licence, one insurance licence, one trust investment licence … and it can’t have actual control of other financial institutions.” The process will require Tomorrow Group to spin off multiple stakes in financial firms because the group had gained actual control in dozens of financial institutions, the source added. Xiao Jianhua firm offloads US$23 billion as China reins in tycoons However, the process of downsizing is proving difficult in light of increased vigilance by regulators. On one hand, few potential buyers are willing to pay price premiums for stakes in financial institutions at a time when Beijing is working hard to prevent them becoming nothing more than “ATMs” for their controllers. On the other hand, Tomorrow Group is reluctant to offer any discounts as it is relying on asset divestment to repay its bank loans as required by Beijing, according to multiple sources familiar with the matter. Hengtou Securities, a Hong Kong-listed brokerage firm whose biggest shareholder is a subsidiary of Tomorrow, said in a filing on the Hong Kong stock exchange earlier this month that an original plan by nine of its shareholders to sell a combined 30 per cent equity stake to the Citic Guoan Group, which was made public in January, was “terminated” as both sides had failed to reach an agreement before the end of March. The company did not specify the reason for the aborted deal. Hengtou Securities ends up 29pc after Citic unit buys HK$11b stake A source close to the deal told the Post that Citic Guoan decided to quit the deal because it saw little prospect of winning regulatory approval for the purchase. The China Securities Regulatory Commission published new draft regulations at the end of March, according to which a controlling shareholder of a securities brokerage firm must have minimum net assets and minimum annual revenues of about 100 billion yuan over the past three years. If the regulations were to take effect, they would disqualify Citic Guoan from the Hengtou Securities deal. “Although the authorities are still soliciting opinions on the regulations ... the regulator has clearly given a signal that they do not like leveraged buyers taking control of China’s financial institutions – just as they want to prevent more new financial tycoons like Xiao emerging,” he said. Top Chinese cabinet official’s sacking ‘linked to missing billionaire’ Xiao The plan to divest Huaxia Insurance, an insurance firm under Xiao’s control, is also facing an uncertain future. China’s Zhongtian Financial, a real estate and finance conglomerate based in Guizhou province, said last November it planned to buy up to 25 per cent of Huaxia Life for 31 billion yuan. However, the price is about the same as Zhongtian’s market cap, which has prompted Chinese financial media to brand the deal as a “snake swallowing an elephant”. A source close to the deal told the Post that the sale is proceeding and Zhongtian has managed to borrow the funds needed to buy the intended assets. However, it is still up to the regulators to decide whether this approach to raising the funds is appropriate and whether the deal should go ahead, the source added. The handling of Tomorrow Group is part of Beijing’s broad efforts to bring the financial sector under its control to manage risks. In this case the specific deals will be conducted by the company, not the government, in contrast to the government’s direct seizure of Anbang Insurance Group. Stake sold in unit of missing tycoon Xiao Jianhua’s empire Xiao vanished from public view in mysterious circumstances in Hong Kong last year. It later emerged that he had returned to the Chinese mainland – having apparently been persuaded to leave the city to help within an investigation into the stock market turmoil of 2015. Two sources have told the Post that Xiao is expected to stand for trial by the end of June and the charges against him may be much lighter compared with the “fundraising by fraud” charges against Wu Xiaohui , the former chairman of Anbang. The Chinese authorities have failed to provide any information about Xiao or his business empire. The website of Tomorrow has not been updated since July 2016 and Tomorrow’s social media account, which was active until Xiao’s disappearance, has not published anything since June. Sources said that Zhou Hongwen, Xiao’s wife and a fellow graduate of Peking University, is currently in charge. Zhou had been a key player in building up the Tomorrow Group since early 1990s, according to an investigative report published by Chin a Business News in April 2013. The Chinese billionaire who rides the tiger can never get off China has seven types of licences for financial services – banking, insurance, trust investment, securities brokerage, fund management firms, financial leasing and futures brokerage – and Xiao is probably one of the few Chinese private entrepreneurs to have actual control of all seven types of licences via a complicated web of direct and indirect holdings. In some sectors he has control of more than one licence. For instance, China has only about 70 licensed trust investment firms but Xiao had majority stakes in three of them at the end of 2016 with a minority stake in another, according to data compiled by New Fortune , a Chinese financial magazine, which combed through public corporate filings and business registration information. However, that picture could be incomplete as a characteristic of Xiao’s empire is that it is often built upon personal links, under-the-table agreements and secretive arrangements known as “deals in the drawer”, instead of direct equity ownership that can be tracked, several sources who know part of Tomorrow’s structure said. Who’s next after Beijing prosecutes Anbang chairman Wu Xiaohui? A Hong Kong-based person who had seen one of the “deals in the drawer”, said the deal was “basically a comprehensive cover-up plan of the real ownership structure”. “It even includes answers to hypothetical questions from regulators or the media,” said the source. Such arrangements – designed to avoid regulatory oversight, facilitate business deals or to skirt away certain restrictions – are widespread in China. They are also a common way for members of powerful political families to conceal their wealth from public sight. A well-informed source told the Post last month that Beijing now views such murky structures as a threat to the country’s financial security.