Wang Yawei built his reputation as one of China’s savviest fund managers while working for China Asset Management (ChinaAMC), the biggest investment fund in the country. His expertise is in bottom-fishing for ‘zombie’ companies with a chance of resurrecting their businesses. The strategy has worked well for Wang, who ranked either first or second between 2005 and 2010 in fund manager performance tables.
When Wang left ChinaAMC in the spring of 2012 he sounded bored and told the press he found it hard being in the spotlight so much. Only a few months later the star money manager established his own hedge fund and this month he was firmly back in the headlines.
However, the Chinese press have noted with some glee that Wang appears to have badly misread the tea leaves when it comes to FAW Car and FAW Xiali, the two listed auto companies owned by the FAW Group and ultimately by state holding company SASAC. National Business Daily suggests that as a top 10 shareholder Wang may have lost at least Rmb100 million ($15.16 million) since the end of the first quarter, as both companies are respectively down 62% and 54% on a 12-month basis.
His investment case received a hammer blow on June 4 when FAW announced it was asking shareholders for a three-year extension on a 2012 commitment to restructure the group and remove intra-group competition between FAW Car and FAW Xiali. The original deadline had been June 28.
The company said pressure on three fronts had prevented it from honouring the deadline: industry pressures, stock market pressures and internal pressures because of multiple management changes following a corruption probe.
The following day both stocks traded limit-down and National Business Daily reckons Wang was one of the major sellers. Indeed, China Fund News said Wang told it: “I quit the play.”
Chinese media outlets have been deeply critical of FAW. National Business Daily says the company has acted dishonestly, while Sina Finance says its actions have damaged the credibility of the country’s capital markets as a whole. China Fund News quotes one private equity investor as merely lamenting, “Central enterprises [those under SASAC] have always behaved like this. They think they can just revoke any commitment when they feel like it.”
Chinese investors are showing every sign of following their American cousins down the litigious path when it comes to errant companies. One major shareholder, Venus Investment, has been gathering voting rights to face down FAW’s proposal at the forthcoming shareholder meeting. It says FAW has no right to revoke its commitment unilaterally – and it will seek compensation if management defers solving the problem for three more years. The Shenzhen Stock Exchange has also asked the state firm to explain its decision and what action it will take if the motion is voted down by shareholders.
In fact, investors were counting on the sweeping restructuring plan to improve the listed firms’ financial status. FAW Car and FAW Xiali have both suffered from declining revenues and profitability over the past few years after failing to invest in R&D (FAW Car sells vehicles using its own brand, and that of Besturn and Hongqi, but it does not include FAW Group’s lucrative joint venture with Volkswagen).
FAW Car has struggled, for example, to reposition Hongqi as a luxury marque. In 2015 it sold just 5,037 H7 Hongqi cars. By contrast FAW’s Volkswagen JV sold 147,977 Audi A61 cars in China. We have chronicled before the woes of Xiali (see WiC247).
FAW’s road to recovery has been hampered by corruption too. Chairman Xu Jianyi – who had been at the company since 1975 – was expelled from the Party last August on corruption charges, as was Zhang Xiaojun, general manager for FAW car sales. The new chairman, Xu Ping – brought in from Dongfeng Motor – has been rooting out senior managers with improper ownership links to FAW dealerships.
FAW’s ultimate objective may be to combine FAW Car and FAW Xiali into a single business. But that will need to overcome resistance from Xiali bosses (currently FAW Car and Xiali behave more like rivals than allies). In the shorter term, expect an unusually stormy shareholder meeting next Monday – although minus the presence of Wang Yawei, if reports are correct…
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