Ren Zhiqiang (left) and Pan Shiyi on the sidelines of a press conference announcing SOHO China's purchase of 100 percent equity in two land projects from Huayuan Property in November 2007. One of the land projects was then named Guanghualu SOHO II. Photo: CFP
Shareholders are looking for justice, after the assets of a firm they invested in were swallowed up in a controversial land deal.
Hainan Minyuan Modern Agriculture Development, a State-owned enterprise under Beijing municipal government, was found to be involved with financial fraud and under-the-table deals that have led to losses for the shareholders and the possible loss of substantial State assets.
"This is the largest scandal since the establishment of China's A-share market," Liu Jipeng, director of the financial capital research center of China University of Political Science and Law, told the Global Times Thursday.
Established in 1988 and listed on the Shenzhen Stock Exchange in 1993, Hainan Minyuan's share price soared by almost 10 times in 1996, but trading in the shares was suspended in February 1997 over financial fraud.
Perhaps the most outrageous aspect of the case is that 1 billion yuan ($161 million) worth of assets including a piece of land in Beijing's downtown CBD area were mysteriously transferred for free to a private firm named Changchun Yeli Group in 2003.
The piece of land in Beijing was sold to Ren Zhiqiang, chairman of Huayuan Property Co, for 520 million yuan in July 2007. Huayuan then sold it to SOHO China for 1.03 billion yuan three months later.
The Guanghualu SOHO II project is now under construction on the land, with SOHO China reportedly set to make a profit of over 5 billion yuan from the development.
Yeli and property moguls Ren Zhiqiang and Pan Shiyi, chairman of SOHO China, have all benefited from trading the assets of Hainan Minyuan, but the shareholders in the company have lost their equity and face a struggle to claim compensation.
Meanwhile, no record of Changchun Yeli Group can be found and the business licenses of two of its subsidiaries have been revoked. Both Ren and Pan have said on their personal microblogs that they had signed a fair deal that was fully compliant with the law and regulations.
Shareholders take action
So long as the shareholders in Hainan Minyuan have 1 percent of the total equity of the firm, it will enable them to launch a class action lawsuit against those who infringed on their interests, Chen Ruojian, a lawyer at Duan & Duan Law Firm, told the Global Times Tuesday.
A total of 527 companies invested in Hainan Minyuan, according to the Shenzhen Stock Exchange.
The majority of these are private firms, Yao Yu, a representative of Hainan Huatai Trade Co, told the Global Times. Hainan Huatai has 135,200 shares in Hainan Minyuan.
It is not easy to gather the private corporate shareholders, Yao said, as the majority of them have either gone bankrupt or have been renamed following mergers and acquisitions.
Yao has been trying to retrace the lost investment since 2000, asking for help from the media and revealing the case to the securities regulator.
But so far, her efforts have been in vain. China Securities Regulatory Commission sent a letter to the corporate shareholders of Hainan Minyuan in May 2012 saying that the case does not belong to their field of regulation.
But Yao said the scandal of how the company ended up this way should be exposed, and the conspirators should be held accountable.
The shareholders said the people responsible were Changchun Yeli Group and a person named Li Jianhua, a director at the Beijing Science and Technology Exchange Center with Foreign Countries (BSTEC).
BSTEC is a subsidiary of Beijing Municipal Science and Technology Commission (BMSTC), an agency affiliated to Beijing municipal government and the original owner of Hainan Minyuan.
BSTEC appointed Li as chairman of Hainan Minyuan after the company was delisted in 1999.
The shareholders have claimed that Li tried to devalue the net assets of Hainan Minyuan after he took office.
Instead of trying to get Hainan Minyuan relisted, Li concluded that the company had net losses of 20 million yuan, leading to the transferal of its assets to Yeli for free.
But Li's conclusion was in sharp contrast with two separate audit results, according to the shareholders.
An investigation by the securities regulator found the firm had inflated its profits in its financial results for 1996, in which it claimed that it had net assets of 2.26 billion yuan. But even after deduction of the false figures, the net assets or shareholder's equity in the company amounted to around 1.05 billion yuan.
A separate audit report in October 1998 by the Beijing Municipal Audit Bureau stated that the company had net assets worth 1.7 billion yuan.
BMSTC agreed to transfer the State-owned 72.41 percent stake in Hainan Minyuan to Changchun Yeli Group for free in 2003 without even convening a shareholder's meeting to discuss it, Huang Pei, president of consulting firm Hejun Vanguard Group, which represents the shareholders, told the Global Times Wednesday
After Yeli took over Hainan Minyuan, it first transferred the land in Beijing's CBD to Beijing Yeli Property Development in 2007, and sold 113 hectares of land in Hainan Lingshan Amusement Park, and nobody knew how much money was paid for the assets, Yao said.
Phone calls by the Global Times trying to contact Li Jianhua, the BMSTC, and Hou Zhu, the representative of Changchun Yeli Group, went unanswered by press time.
Beijing Yeli Property should be held liable for the debts of Hainan Minyuan, according to a lawsuit brought by China Orient Asset Management against Hainan Minyuan in 2008.
Pan Shiyi took a controlling stake in Beijing Yeli Property when he bought the land from Ren of Huayuan Property, Wang Min, a lawyer at Sinotrust Law Firm, told the Global Times Wednesday.
China Orient Asset Management lost its case in late 2011 due to a lack of evidence of a relationship between Changchun Yeli Group and Beijing Yeli Property, Wang said.
But the deal indicates that Pan and Ren both know Changchun Yeli Group, he noted.
The only solution is for government agencies to get involved in the investigation, and to require Ren and Pan to disclose the contracts and agreements they signed and sort out where the money has gone, Wang said.
The shareholders can also sue the BMSTC and the BSTEC officials for malfeasance and negligence of duty, and try to find out if there has been corruption and under-the-table deals, he noted.