Glitch in Rongsheng Rescue Sheds Light on Shady Investor; Capital market veteran Wang Ping had sights set on struggling shipbuilder, but has been detained on fraud charges in investment funds

http://english.caixin.com/2015-04-03/100797361.html

04.03.2015 12:26

Glitch in Rongsheng Rescue Sheds Light on Shady Investor; Capital market veteran Wang Ping had sights set on struggling shipbuilder, but has been detained on fraud charges

By staff reporter Yu Ning and Hong Kong correspondent Wang Duan

(Beijing) – The detention by police of a capital market veteran has interrupted the restructuring plans of China’s largest private shipbuilder and shed light on the tricks used by an investor who seems to have always profited from distressed companies. In early March, debt-ridden shipbuilder Rongsheng Heavy Industries Group Holdings cancelled a planned 3 billion yuan warrant issuance to the private equity firm Kingwin Victory Investment Ltd.Behind the cancelled deal is the detention of Wang Ping, the controller of Kingwin Victory and chairman of Cypress & Kingwin Capital Group Ltd. Sources close to the matter said Wang was arrested on February 23 in Zhuhai, in the southern province of Guangdong, by police from Beijing on charges of fraud in investment funds.

Wang has been an active player in stock market and PE sector over the past several years. His Cypress & Kingwin Capital serves as an umbrella for a number of equity investment funds and Wang has sat on the boards of more than a dozen companies listed on the mainland and in Hong Kong.

Wang is seen as a kind of vulture investor in China’s capital market – he usually buys assets from distressed sellers at a low cost and profits from reselling the assets after restructuring.

Before his latest target, Wang had purchased the country’s largest building materials chain, Oriental Home; software developer named 35.com; and Walmart’s Chinese partner, SZITIC Commercial Property Co. Many investors said Wang’s investments did not bail these companies, but were in fact questionable transactions with opaque capital flows.

Wang’s detention follows an investigation into Jiang Yuemin, chairman of Oriental Home and president of Cypress & Kingwin Capital in May 2014. A person close to Wang said he has been in Hong Kong for most of the past year. When he returned to Zhuhai for Spring Festival, he was detained.

A Business Puzzle

Wang, who in his 40s, is a native of the northeastern province of Jilin. He once worked for a major state-owned company in the coastal city of Xiamen, and then started an equity investment business.

In February 2012, Wang’s Cypress & Kingwin Capital signed an agreement with Liu Hui, chairman of ARC Capital Holdings, to take over the latter’s 65 percent stake in Oriental Home, which operates 25 large building materials markets across the country but was suffering from a shortage of capital.

Liu bought the stake in Oriental Home and took over the company’s debts in 2007 for 1.4 billion yuan, but then failed to pay about 600 million yuan to close the deal. Cypress & Kingwin Capital promised to fulfill Liu’s payment to Oriental Home in the contract.

Cypress & Kingwin Capital’s Jiang Yuemin, who was a college classmate of Wang’s, was named chairman of Oriental Home.

Employees of Oriental Home said that Cypress & Kingwin Capital has neither fulfilled the payment nor made an effort to improve Oriental Home’s business. Oriental Home reported another 200 million yuan loss after Cypress & Kingwin Capital took control.

In October 2012, Oriental Home suffered a capital crunch, resulting in a business suspension and employee protests. But Cypress & Kingwin Capital executives, including Jiang, did not show up to discuss and try to solve the problems.

Oriental Home’s founder and second largest shareholder, Orient Group Incorporate Co., offered to give the company 20 million yuan to help it through difficult times in 2013. Executives from Orient Group said they could not reach Cypress & Kingwin Capital for a solution at the time.

Orient Group executives said that a later audit found Cypress & Kingwin Capital had taken the investment funds it paid to Oriental Home shortly after the transaction.

Orient Group has been unable to contact Jiang and Liu since March 2013. It filed a lawsuit against Cypress & Kingwin Capital for breaching the contract. In August that year, Oriental Home went to Beijing police to accuse Jiang of embezzlement.

Jiang and Song Xuedong, the vice president of Oriental Home, were detained in May 2014. Liu and another ARC Capital executive, Li Fengjiang, are still at large. Employees of Oriental Home said Liu and Li used the company for related-party transactions.

A later audit of Oriental Home found that Liu transferred 15 percent of the company to Cypress & Kingwin Capital between August and November 2010. During the period, Cypress & Kingwin Capital approved a 190 million yuan investment in Oriental Home, but only 160 million yuan was in place; the other 30 million yuan was paid to Liu’s personal account. The money was returned to Oriental Home’s account in batches between January and June 2011.

The 160 million yuan paid to Oriental Home was later transferred to a company affiliated with Cypress & Kingwin Capital.

Auditors also found frequent money transfers between Oriental Home and Cypress & Kingwin Capital and its subsidiaries between 2008 and 2012. These transfers involved high-interest loans totaling hundreds of millions of yuan.

Eyes on Rongsheng

In October, Kingwin Victory Investment, which is wholly owned by Wang, agreed with Rongsheng to buy 1.7 million of the latter’s newly issued shares. After the issuance, Kingwin Victory would become Rongsheng’s largest shareholder, with a 19.2 percent stake.

Zhang Zhirong, Rongsheng’s founder and largest shareholder, said the deal would provide the company with 3 billion yuan to support a business transformation to the energy industry.

Early in 2013, Kingwin Victory purchased HK$ 18.5 billion of Rongsheng’s convertible bonds.

Wang started to tap the shipping market in late 2012, despite a global slowdown. In December that year, Cypress & Kingwin Capital signed an agreement with the government of Zhoushan, in the eastern province of Zhejiang, to set up a 10 billion yuan shipping industry fund. In September 2013, the fund completed its first batch fundraising, totaling 508 million yuan.

In May last year, Wang’s Kingwin Capital Group purchased HK$ 1 billion worth of convertible bonds from Hong Kong-listed China Ocean Shipbuilding Industry Group. If the bonds are converted, Wang would become China Ocean Shipbuilding’s controlling shareholder, with a 49.4 percent stake.

Some said Wang is counting on the shipping market to bottom out.

“Wang has a strong taste for gambling,” one source close to him said. “He dares to take risks.”

Zhang said Rongsheng was attracted by Wang’s experience in Hong Kong’s market, and hoped he could support the company’s overseas expansion.

Rongsheng scheduled a March 13 shareholder meeting to vote on Kingwin Victory’s investment. But on March 4, following media reports that Wang had been detained, the company filed a statement with Hong Kong’s stock exchange announcing the deal had been cancelled.

In late March, Rongsheng said in a statement that it had signed an agreement on a reshuffle involving a partner, but did not elaborate. It also said it had decided to sell all its shipbuilding assets and focus on energy.

Investment Veteran

Wang’s resume shows he holds a Phd degree in accounting from Xiamen University and has worked for Xiamen’s audit bureau.

He set up Cypress & Kingwin Capital in 2007, and it controls a large number of subsidiaries. The company said it manages more than 20 billion yuan worth of funds and made investments in a range of industries, from retail and new energies to information technology and the culture and health sectors.

A business registration document shows that Wang registered a new energy company in the British Virgin Islands.

People familiar with Wang said he made a fortune from investments in small and new start-up businesses listed in Shenzhen. In 2008 and 2009, a Cypress & Kingwin Capital investment subsidiary purchased 2.9 million shares of Shenzhen Changhong Technology Co. and quadrupled its investment after Changhong went public a year later.

Sources close to Wang said that since the dispute with Oriental Home escalated, Wang started to sell his stakes in Cypress & Kingwin Capital’s subsidiaries. In October, he reduced his 72 percent holding in Zhongke Hongyi Venture Capital Co., the major asset of Cypress & Kingwin Capital, to 10.7 percent and stepped down as its chairman and legal representative.

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