Economy

Love and losses

Two marital breakdowns hit corporate China

Forest-Huang-w

Huang Tao: Lily & Beauty boss

No one ever wants to become a customer of Weiqing Network Technologies, a Shanghai-based firm that specialises in saving marriages from divorce. But demand was still strong enough for its services to fuel a filing to go public in 2017. Weiqing claimed an impressive record in its IPO prospectus in saving 257,316 marriages through a combination of counselling for the couples and services that “exterminate third parties in a peaceful way”, the China Daily reported at the time.

The Chinese company boasted an arsenal of tricks to make all of this happen, including paying off illicit lovers – most typically mistresses – or introducing them to new love interests. Some were simply shamed with photos of their liaisons sent to friends and families.

The most desperate client is said to have shelled out Rmb1.42 million ($216,485) a year for services of this type. But high fees like these might sometimes be justified in light of the financial disaster and social stigma that can came with a divorce in China. Under the country’s Marriage Law, divorcees aren’t entitled to much spousal support, at least not to the same standard of living often established during marriage. Matrimonial assets – including real estate and stock holdings – can also be split in half during divorces. For some of the wealthier CEOs and entrepreneurs around the country, this kind of division of assets can have wider ramifications – rippling beyond the family to investors and employees.

The power struggle at Shenzhen-based GIG, one of China’s earliest healthcare-focused private equity firms, is a case in point. On March 7 GIG announced it had expelled its founder and former chairman Cai Dajian, citing “the extremely negative effects and huge losses” it had suffered as a result of improper behaviour, including alleged embezzlement.

The notice came at the same time as a separate statement from Jin Huili, currently GIG’s largest shareholder with a 43% stake, that said that Cai had been manipulating other shareholders to seize control of the company and remove her from the board.

Jin is Cai’s former wife. She took over GIG at the start of February following a transfer of stock ownership triggered by their divorce.

Back in September she had shocked the business community with a juicy letter divulging some of the details of a long-term affair between Cai and his colleague Zhang Xiaonan. Jin noted that the couple already had a five year-old daughter and were planning to have a son through a surrogate in Thailand. After 33 years of marriage, she was understandably furious, adding that she had suspected for some time that Zhang’s luxury lifestyle had been funded with company resources.

Cai seems supremely unashamed by the revelations, however. “An excellent man is meant to be shared among many women and sow his seed as widely as possible,” he explained of his philandering, according to his ex-wife. “He proves his success by conquering women. This is animal instinct.”

Zhang wasn’t the only beneficiary of her former husband’s extra-marital energies, Jin also insisted.

Born in 1964, Cai moved to Shenzhen in 1992, the year Deng Xiaoping made his Southern Tour rebooting economic reforms. He joined what has since become Guotai Junan, the country’s largest brokerage. Rising through the ranks at the firm’s investment banking unit, he was appointed as chairman of GIG in 2001, the year it was established as Guotai Junan’s private equity arm.

There Cai earned a reputation for making aggressive returns on companies in the healthcare sector, most notably Mindray Medical (see WiC459), Boya Bio-Pharmaceutical Group and Sansure Biotech (see WiC486). Of the 140 companies in which GIG has invested, 20 have gone public, bringing the firm’s assets under management to more than Rmb20 billion ($3.06 billion).

However, GIG’s botched attempt to grow Boya by acquiring Danxia Biotechnology, a blood plasma supplier, for Rmb4.5 billion in 2017 mired the pharma firm in financial trouble. Shortly before the transaction was completed Danxia was forced to halt production after being caught violating local laws.

The ban was not lifted until August 2019 and Danxia has been lossmaking for the last three years. Unable to execute the merger, which had already been financed with loans, GIG saw its liabilities surge to Rmb6 billion and it was forced to sell some of its shares in Boya to cover loan repayments.

The divorce between Cai and Jin – which was finalised last December –has complicated the situation further.

Aside from an asset freeze – required to determine the distribution of marital assets – the subsequent change in ownership at Boya impacted a strategic investment from a willing white knight. GIG had agreed last September to sell 16% of Boya’s shares to China Resources Pharmaceutical and transfer another 13% of Boya’s voting rights to the state-owned enterprise. But as Boya’s share price fell in the wake of the scandal China Resources asked for a 25% discount to the previously agreed price, reported Jiemian, an online news platform.

The request came at a time when GIG’s management was already paralysed by infighting. A day after Cai was dismissed, Jin was also kicked out of the firm.

Regardless of any sympathy that people might have had for her personal situation, many questioned her capacity to run a sizable financial services company, given her lack of experience in the field. The leadership vacuum lasted for a week until Bian Zhuang, chairman of Suzhou Deluxe Electric, GIG’s second largest shareholder, emerged as new leader of the fund.

Jin’s story echoes that of another forsaken wife. On International Women’s Day last month Weng Shuhua revealed on Sina Weibo that her husband Huang Tao, the founder of Shanghai-listed Lily & Beauty Cosmetics, had not been home for years, even though his office is just a few streets from their residence.

“All your beautiful promises have over time become distant memories and empty cheques. Your smiling face was given to others. Your life is outside your home,” Weng fumed. “You make excuses over not shouldering expenses at home. You pretend that you forget your kids need your company. It’s pointless to talk about having dinner together as a family, as even a holiday greeting [from you] has become a luxury for us.”

She tagged her post on social media to a number of high-profile individuals, including Jack Ma (Alibaba is the second largest shareholder in Lily & Beauty) and Papi Jiang (Lily & Beauty spent Rmb22 million bidding for the popular livestreaming host’s debut advertising slot). That meant that it took even less time to spread across social media and the share price of the online retailer was soon taking a beating as a result, with more than Rmb2.3 billion wiped off its market capitalisation.

In another post, Weng addressed Huang, saying that he should be prepared to take delivery of documents (likely divorce papers, it was presumed online).

There were heavy hints about another woman being involved – a company vice-president – fuelled in part by a picture of Huang’s office, which seemed to show a breast pump and a bottle steriliser.

Divorce rates in China have been on a steady rise in recent years. Almost 2.4 million couples parted ways in the first half of last year, Sohu reports. But for senior executives at some of the country’s largest companies, the break-ups can bring huge settlement fees.

The vice president of Sany Heavy Industry paid Rmb2.2 billion to his former wife, while the chairman of Beijing Kunlun Tech forked out Rmb7 billion.

In another major case last year Kangtai Biological’s chairman was required to give his former wife about Rmb23 billion worth of the company’s shares in a divorce settlement. Analysts were stunned, speculating that the move was a plot to skirt lock-up periods on the couple’s stock.

In an interview with National Business Daily about the scandal at Lily & Beauty, Weng said she would prefer to stay with her husband as they share children together. But she did not dismiss the possibility of a final separation, complaining that he had continued to turn his back on her, even after her very public shaming of him. Huang responded only with a cryptic statement of his own: “As time goes by, you’ll see the truth, and you’ll understand what I am worried about. After all, I have to consider the safety of many people, right? I don’t believe that public opinion can influence justice.”

Meanwhile with divorce rates and infidelity on the rise, expect more cases of corporate turmoil as marriages dissolve.


© 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.