Chinese Character

Let there be light

The rapid rise and faster fall of Chinese tycoon Wu Changjiang

Let there be light

They seek him here, they seek him there: Wu has fled Chongqing and talks about taking his family to Canada

“For, everywhere, no trace of him can be seen,” is a famous line penned by Xin Qiji, a poet of the Northern Song Dynasty. It describes recent events surrounding Wu Changjiang, founder and former boss of NVC Lighting. In May the Chongqing-born tycoon resigned as chairman and CEO. Then he fled mainland China.

CBN reports that Wu is currently in Hong Kong with a plan to move his wife and daughter to Canada.

The mystery surrounding Wu escalated on June 19 when he failed to show up at NVC’s annual general meeting, disappointing the 80 or so journalists in attendance. Subsequent to this, Wu’s replacement as chairman issued a ‘voluntary’ statement: “The board is aware of the recent speculation in some press reports concerning an investigation by the Chinese authorities into Mr Wu Changjiang, the former CEO and chairman of the company. The current speculation, if true, will have an adverse impact on the company and its reputation. The board is therefore investigating what implications, if any, of the alleged investigation of Wu or any related matters might have for the company.”

In an interview with CBN, Wu admits to having been involved in an investigation by the authorities, but claims to be innocent. However, the reporter from CBN said Wu “appeared evasive” when asked whether it was because the investigation was ongoing that he was unwilling to return to the mainland. His eventual response: “I can always go back.”

Embroiled in the fallout are a French multinational and an international private equity firm. Adding further spice: Wu’s possible connection to purged Chongqing politician Bo Xilai.

The 47 year-old Wu is a classic fast-charging, ambitious Chinese entrepreneur. A graduate of Northwestern Polytechnical University (in aircraft manufacturing), he drifted into the lighting industry, working for two firms before founding NVC in 1998. In the ensuing years he built China’s number one lighting firm. By 2011 NVC had 2,968 sales outlets across the country. To showcase his wares, Wu sold his products to the Olympic Stadium in Beijing. Hotels like Hilton have bought his products, as have car brands such as BMW.

Last year the company made a post-tax profit of $90.5 million on revenues of $589.3 million and sales of its own brands constituted 70.4% of its revenues in China. International expansion, particularly in the UK, means foreign sales comprise just over a fifth of total revenues.

NVC’s growth has been closely correlated with China’s construction boom, and more recently it realised that going green would support a further growth spurt. Policymakers want to phase out of the use of incandescent bulbs in favour of LED lighting, which uses less energy and has a typical lifespan 30 times greater than old-fashioned bulbs. The government’s target: LED lighting is to be used in 30% of Chinese homes and buildings by 2015 (a market said to be worth Rmb500 billion). NVC is a big player in LED, with energy-saving products now making up 60.5% of sales.

Wu financed much of his growth by bringing in other shareholders. In 2006, SAIF, the $3.5 billion private equity firm, bought a stake; and in May 2010 NVC listed in Hong Kong raising $176 million (the deal’s public tranche was 30 times oversubscribed). As a result of the IPO, Wu’s personal stake was reduced to 19.19% and SAIF’s to 18.33%.

The next big move was to bring in a strategic investor with a technology edge. Accordingly, last July Schneider Electric purchased a 9.2% stake, a move Wu called a “win-win”. NVC could learn from the French multinational, especially as it internationalised its operations. Schneider saw huge upside too in China where it estimated 120 million people would be moving into towns and cities in the coming five years (more construction, more lights).

So what went wrong? Why did Wu suddenly quit the successful company he founded? Wu told CBN it was for “personal reasons”. He says the strain of growing the business by 30% a year was taking a toll on his health and that doctors in Singapore told him his blood pressure had reached dangerous levels.

But 21CN Business Herald has another explanation. It reckons that other shareholders were becoming discontented with Wu’s “family business-style management model” and wanted to professionalise the organisation. The new CEO, for example, is Zhang Kaipeng, a former Schneider executive. The new chairman is SAIF’s Andrew Yan, who holds a Master’s from Princeton University. Yan sits on the boards of other heavyweight firms including Giant Interactive, Huiyuan Juice and Fosun International.

The Economic Observer concurs. In an article entitled “Chongqing’s missing entrepreneur” it investigates Wu’s business interests in the city of his birth, and argues that they may have led to conflicts with other shareholders. Problematically Wu built a new manufacturing facility in the city, which supplied NVC but was not a subsidiary. Instead it was owned by his family. The firm – called Enweixi – signed a contract with NVC in February to supply $20 million worth of goods this year.

A conflict of interest, perhaps? Nor was it only Wu’s fellow shareholders taking an interest in the setting up of Enweixi. Soon, government came calling too. That’s because the piece of land that Wu was granted for his facility was approved by Xia Zeliang, an official who has since been detained as part of the anti-corruption sweep following the ousting of Bo Xilai. At least two other property transactions in the city may also be part of the investigation.

While Wu remains the biggest shareholder of NVC, the tycoon has effectively lost control of the company. An attempt to nominate his brother to a board position failed to be tabled at the recent AGM (and even though Wu was in Hong Kong at the time of the meeting, he chose not to turn up to vote his shares). The current rumour is that Schneider would like to buy the firm outright, although Yan denied that in an interview with 21CN, saying that SAIF does not want to sell its stake.

Whether NVC will continue to flourish without its dynamic founder remains a key question for institutional investors. The stock has almost halved in value since the start of the year, with the most precipitous declines occurring since May when news of Wu’s disappearance broke.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.