“The biggest test for a budding entrepreneur isn’t overcoming technological difficulties or sleepless nights but distrust from all corners of society,” Tunghsu group founder Li Zhaoting told the China Daily back in 2015.
Li’s critics and creditors, of which there are many, would say that he failed that particular test. There’s been widespread coverage of the survival prospects of Li’s company, which pretty much collapsed overnight in November 2019 after missing an onshore bond payment despite reporting an apparently healthy balance sheet.
Tunghsu has battled to stay afloat ever since, announcing plans to sell-off non-core assets recently, and claiming that it would “survive 2021 with broken arms” (a reference to the Chinese saying on “keeping a broken arm within your sleeve” or trying not to reveal your weaknesses).
One reason why it got into difficulty was because “all it did was borrow and buy”, as one former investor explained to Tencent Prism. Tunghsu chased assets in one sector after another (graphene, electric vehicles, solar energy, 5G), generally opting for the industries getting the most investor attention of the moment. But it then failed to invest in growing them. It also neglected its main operating company, the glass screen manufacturer Shenzhen-listed Tunghsu Optoelectronics (which we’d included in the WiC30).
Now Tunghsu is reaping the financial consequences of the spending spree, reporting a year-on-year net loss of Rmb1.01 billion ($160 million) during its most recent interim financials. S&P Global Market data indicates Rmb9.3 billion in cash and short-term investments against Rmb30 billion in current liabilities. The Chinese press also flags Rmb13.5 billion in outstanding debt and interest payments following a series of bond defaults, which are subject to onshore and offshore litigation.
Tunghsu’s financial mess came to light as part of a wider cash crunch in 2019. The group’s defaults also shone a light on its auditor Zhongxingcai Guanghua, an accounting firm already subject to four separate investigations (it was back under scrutiny this summer when regulators halted more than 40 IPO applications as part of a review of intermediaries on the deals, including Zhongxingcai).
In 2019, Tunghsu announced plans to transfer a controlling stake in the company to its local Sasac (the agency that manages state assets). But there have been no new updates on the restructuring since then.
“They’re like devils who drink investors’ blood and feast on their flesh, but don’t even bother to spit the bones out,” was the withering assessment of one netizen on the group’s formerly buccaneering style.
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