Till stocks do us part

Source:Global Times Published: 2017/6/28 17:23:39

Markets pay sky-high price for divorces of companies’ top personnel

Photo: IC

A recent divorce between Yan Jianbing, a board member of the Shenzhen-listed Shenzhen Ysstech Info-Tech Co, and his wife has resulted in a plunge in the company's share prices. Many people have since become suspicious about the real intention behind the divorce. Yan's divorce is a typical example of how the divorces of major shareholders from domestic listed companies are affecting the stock markets: Property split is changing the company's ownership structure, bad reputation is causing the company's shares to plunge in price and speculation is soaring over whether the divorcees are genuine or whether they are deceitfully separating in order to facilitate stock selling.

As divorce becomes more normal in today's society, the capital markets are also suffering from the increasing hangover of marriage dissolution; it is now commonly triggering strong volatility.

Gossip has recently been flourishing about the market consequences of divorces between board members or senior executives of domestic listed companies and their spouses.  The person in the hot seat at the moment is Yan Jianbing, a board member of the Shenzhen-listed Shenzhen Ysstech Info-Tech Co, who lately divorced from his wife, Huang Yi.

According to a statement Shenzhen Ysstech issued on June 22, Huang obtained 27.83 million shares of Shenzhen Ysstech from Yan in the properties division. Before the infamous split, Yan held around 8.1 percent of the company's total stock issuance, now he only holds 4.35 percent.

The divorce, as well as the change in equity ownership and subsequent rumors it has brought about, led to strong fluctuation in the company's share prices.

On Tuesday, Shenzhen Ysstech's share prices slumped by 1.19 percent to 11.58 yuan ($1.696) per share, marking one-fifth consecutive drop.

Within the domestic stock market, Yan's divorce is not an isolated incident, but rather a typical example of how the personal and private lives of top executives can spark inter-market conflicts, especially in the case of a divorce.

The incident has also provoked sweeping speculation that the couple deliberately and disingenuously divorced in a plot to facilitate stock selling.

True price of divorce

One of the reasons why the divorces of board members or senior executives attract substantial media and public attention is because such separations often result in dramatic equity ownership changes and sky-high property redistribution. 

When Zhou Yahui, president of the Shenzhen-listed Beijing Kunlun Tech Co, divorced from Li Qiong in September 2016, the ex-wife received about 278 million Kunlun Tech shares from Zhou, worth about 6.46 billion yuan when considering the company's current share price.

Another example is the divorce between Feng Mintang, a board member of Shenzhen-listed Himile Science and Technology, and his ex-wife Liu Xia in May 2015. According to their divorce agreement, Feng gave Liu about 53.8 million shares of Himile Science.

A third high-profile example is the divorce between Sun Taoran, a board member of the Shenzhen-listed BlueFocus Company, and his ex-wife Hu Linghua in May 2011. After the divorce, Hu received 5.51 million shares from Sun. The shares she received accounted for 4.59 percent of the company's total stock issuance, worth about 43.42 million yuan.

Sometimes, such high-profile divorces can also result in fundamental changes in a firm's ownership structure. For example, before Wang Ning, founder of Shenzhen-listed Ultrapower Co, divorced from his ex-wife An Mei in October 2013, he was the major shareholder of his company. But after the divorce and the property split, he tied as the third shareholder with his ex-wife.

In stark comparison, the divorce between overseas company leaders and their spouses are not so expensive. For instance, when News Corp CEO Rupert Murdoch and his ex-wife Deng Wendi divorced, Deng didn't receive any shares or assets from her ex-husband's company.

Affecting capital markets

There have also been many cases in which divorces have caused listed companies to suffer valuation slides in the capital markets.

Domestic economist Song Qinghui said that this was because the public splits of listed company's major shareholders or executives and their spouses would damage the company's reputation - possibly due to a seeming stigma attached to divorce - which in turn negatively impacts the company's share price, Beijing-based China Business Journal reported on February 13.

A prime example of this is the impact of the divorce between Suzhou Electric Appliance Science Research Center Co shareholder Hu Chun and his ex-wife, Wang Ping.

In a statement issued by the Shenzhen-listed company on January 28 announcing the divorce, Wang was also reported to have obtained 32 million company shares. Consequently, the company's stock prices slid by its 10 percent trading limit on that same day, the China Business Journal report noted.

Furthermore, in the aforementioned case of the Kunlun Tech Co divorce, the company's shares later slumped by 3.92 percent on September 12, 2016 after Kunlun Tech issued a public notice announcing the divorce between Zhou and Li and their property split results. 

There have also been instances when companies' high-level personnel divorces invite more serious consequences than stock price plunges.

For example, when domestic online video company Tudou.com Inc was seeking an IPO on the Nasdaq Stock Market around the beginning of 2011, the ex-wife of Wang Wei, the founder of the company, suddenly requested 38 percent of the company's shares from Wang. The friction over property allocation finally caused the company to miss the best IPO opportunity on the NASDAQ.

Speculation over divorce plots

Apart from reputation damage, another reason why personnel divorces can affect a company's stock performance is that investors are suspicious about whether divorcees are operating in a Machiavellian way in order to deliberately bypass government supervision.

The China Securities Regulatory Commission (CSRC) noted in May that major shareholders, those who hold more than 5 percent of the company's total stock issuance, must disclose their share-selling plan 15 trading days ahead of the selling. They are also prohibited from selling more than 1 percent of the company's entire shares within three months.

This rule has caused people to speculate whether companies' major shareholders may decrease their share holdings to below 5 percent through 'fake' divorces so that they can sell stocks more easily.

In the case of Yan Jianbing, before his divorce, he was to disclose his stock decrease plan ahead of the selling in accordance with the CSRC rules. However, now he is divorced, he can sell stocks more freely without notifying anybody.

Conspiracy theories have proliferated on Weibo insisting that Yan's divorce was part of a devious stratagem, allowing him to sell stocks to get fast cash.

"Divorce is a big loophole in the current stock selling regulations and must be filled as soon as possible," one Weibo comment read on Thursday.

The CSRC has beefed up efforts in standardizing stock selling by major shareholders in recent months in order to stabilize domestic stock markets, walking away from a point of decline. The regulator also noted on May 26 that such efforts will continue in the future.

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