A securities company seized in connection with the dismantling of the holding of tomorrow is blocked

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Shareholders in a securities firm linked to ousted tycoon Xiao Jianhua’s Tomorrow Holding Co. Ltd. have put up for sale their combined 98.24% stake as regulators take another step in dismantling the once free financial conglomerate.

The eight largest shareholders of New Times Securities Co. Ltd., some of whom are linked to Tomorrow Holding, are getting rid of 2.9 billion shares on the China Beijing Equity Exchange, a property rights exchange platform based in the capital city. They aim to raise no less than 13.1 billion yuan ($ 2 billion), according to a file (link in Chinese) on the exchange Thursday.

New Times Securities is one of nine financial firms controlled by Tomorrow Holding that were acquired by financial regulators in July 2020 as part of efforts to unravel the sprawling financial empire of the secret conglomerate which also included Baoshang Bank Co. Ltd., the regional lender seized by regulators in 2019. The buyout of the nine companies, which have played a key role in Xiao’s business and supported many of its major acquisitions, was initially only expected to last for a year, but was expanded for an additional 12 months in July of this year.

Founded in 1999, Tomorrow Holding has grown into a conglomerate with activities as diverse as banking, securities, insurance, coal and real estate. Through complicated and sometimes illegal shareholder agreements, Tomorrow Holding controlled a large number of financial institutions that helped finance Xiao’s business expansion. Chinese authorities arrested the tycoon in January 2017 as part of a corruption investigation.

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There are conditions for new owners of New Times Securities – they shouldn’t consist of more than three entities and include one that is willing to take a controlling interest in the brokerage, according to the filing. They will be required to cooperate with regulators to deal with asset management products sold by New Times Securities which are now in default, and must also agree to maintain the stability of the brokerage’s business operations and staff.

At least four of the brokerage’s eight major shareholders have direct ties to Tomorrow Holding, and Caixin revealed (link in Chinese) in July that shares were pledged by Tomorrow Holding as collateral for loans of around 12 billion yuan.

The conglomerate owns 40% of Shanghai Yili Industrial Development Co. Ltd., 98.6% of Baotou Beipu Industrial Co. Ltd., 99.9% of Weifang Chuangke Industry Co. Ltd. and 2% of Beijing Xintiandi Interactive Multimedia Technology Co. Ltd. – respectively the largest, third, fourth and fifth shareholders of New Times Securities, with respective holdings of 45.5%, 10%, 9.8% and 7.8%,

In 2020, New Times Securities reported net profit of 36.5 million yuan on revenue of 1.6 billion yuan, according to the document filed Thursday. Its net assets stood at 10.2 billion yuan at the end of last year, the annual report 2020 (link in Chinese) showed.

In February, a consortium led by China Chengtong Holdings Group Ltd., an investment company overseen by the State Council’s State Council for Supervision and Administration of State-Owned Assets, offered to buy New Times securities at a price to book (PB) ratio of 1 – an offer price equivalent to the broker’s net assets and a valuation below the industry average.

New Times Securities rejected the offer and demanded a higher price after finding out that Guorong Securities Co. Ltd. was in talks to sell a stake for 8 billion yuan with a PB ratio of 2.88. Experts said a PB ratio of 1.6 would be reasonable for New Times Securities, suggesting a price of 16 billion yuan.

Unrolling the complex network of companies controlled by Tomorrow Holding and selling its assets has been a difficult task for regulators. They began to separate the conglomerate in 2019 with the seizure of Inner Mongolia-based Baoshang Bank over its “severe credit risk” which threatened the stability of the banking system. The good assets of the lender were then taken over by Mengshang Bank, whose major shareholders include a national deposit insurance fund managed by the central bank, the government of the Autonomous Region of Inner Mongolia and Huishang Bank Corp. Ltd, based in Anhui.

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In addition to cleaning up New Times Securities, the China Securities Regulatory Commission was tasked with sorting out another brokerage firm, Guosheng Securities Co. Ltd., and a futures company, Guosheng Futures Co. Ltd. Their day-to-day operations are handled by CSC Financial Co. Ltd., Avic Securities Co. Ltd., China Merchants Securities Co. Ltd. and Guotai Junan Futures Co. Ltd.

The other six companies included in the nine seized by regulators in 2020 – four insurers and two trust companies – are handled by the China Banking and Insurance Regulatory Commission. https://www.caixinglobal.com/2020-07-17/china-seizes-billion-dollar-financial-firms-controled-by-mysterious-tycoon-101581449.html

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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