Banking & Finance

Surprise gift

Delisting candidate gets generous donation

shanghai stock exchange

The stock’s no longer trading there

School reunions often bring out the competitive side in their attendees – like the Ningbo-based businessman who presented 39 specially-embossed gold iPhone 6 handsets to his former classmates at a get-together last month. The People’s Daily even dubbed him the best classmate ever.

But there is a new challenger for the title of ‘best classmate’. Over the Christmas period Zheng Weibin, a minority shareholder in Zhuhai Boyuan Investment, agreed to gift a 95% stake in a Fujian-based construction firm to the Shanghai-listed company free of charge. Purportedly this was because of his high school friendship with Boyuan’s chairman Xu Jiaming.

Boyuan, which specialises in recycling industrial waste, said it had signed an “asset donation agreement” with Zheng on December 11 and would seek shareholders’ approval for the transaction later this month. The Shanghai Stock Exchange responded by issuing a series of letters over the course of December asking Boyuan to supply reasons for Zheng’s generosity and a breakdown of his personal assets.

As explains, the move has aroused concerns in the wider market given the stake is worth about Rmb859 million ($131 million). It amounts to 71% of Boyuan’s current market value and represents an “unprecedented act of generosity by a minority shareholder”.

Boyuan seems reluctant to disclose further details. It has said Zheng made the gift because he wanted to help his classmate.

Zheng has also refused to disclose details about his own financial status, citing privacy concerns.

Stories about the strange behaviour of some of China’s more rough-and-ready A-share firms are nothing new. But in a country often described as the Wild West for stock market investing, it would appear Boyuan may possibly be its Billy the Kid.

The donation looks to be part of the company’s attempt to prevent itself from being delisted from the Shanghai exchange. But it is just the latest example of some fairly bizarre manoeuvring since it was placed under investigation by the China Securities Regulatory Commission early last year – for the improper disclosure of information.

Last April, the regulator’s action led Boyuan to issue what must rank as one of the most unusual statements to accompany an annual report. “The board of directors, board of supervisors and senior management cannot guarantee the truthfulness, accuracy and comprehensiveness of the annual report,” it stated. “Nor are they able to guarantee that the report doesn’t contain any false records, misleading statements or significant omissions.”

The Shanghai Stock Exchange responded to Boyuan’s statement by suspending its shares and putting it into the “special treatment” watchlist in preparation for a delisting. As such Boyuan became the first company to fall foul of the new listing regulations introduced in November 2014.

These require firms under investigation for fraudulent share issues or information disclosures to issue delisting warnings.

Boyuan’s first delisting warning was issued in December 2014 and under the new regulations it stands to be delisted within 12 months of being referred to the police on March 26, 2015.

Now as a result of classmate Zheng’s generosity, Boyuan has at least swung back to a profitable position again, reported. In 2014 it posted a net loss of Rmb99 million, although its auditing firm, Da Hua Certified Public Accountants, issued an audit report in which it said it was unable to express any opinion, the Wall Street Journal notes.

The previous year the company had reported a net profit of Rmb17 million. It said revenues had slid 69% to Rmb49 million in 2014 because it did not recognise sales from a subsidiary, but did not explain why. The Securities Daily says Zheng’s asset donation will cover losses relating to a former shareholder’s “misappropriation of funds” as part of a Boyuan restructuring plan. However, it adds that while the assets will improve the company’s financial position they will not prove decisive in meeting the conditions required for its prospective return to stock market trading. These include replacing officials responsible for violating information disclosure rules.

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