Five companies linked to detained Shanghai tycoon Zhou Zhengyi (周正毅) lost US$636 million of market value in two weeks -- nearly double the wealth he accumulated to rank as China's 11th-wealthiest man last year.
Investors aren't waiting for the 42-year-old entrepreneur, who compared himself last year to Hong Kong billionaire Li Ka-shing (李嘉誠), to emerge from police custody. They're dumping shares on speculation more companies may be tied to a widening investigation, traders said.
"Zhou's case reaches further than expected," said Yao Maogong, the deputy chief trader at Shanghai Securities Co.
"More people, including high-ranking officials, are likely to be implicated," Yao said.
Zhou, known as Chau Ching-ngai in Hong Kong, began as a factory accountant, according to the Hong Kong Standard newspaper, which also reported his reference to Li. A quarter-century later, Forbes last year put his wealth at US$320 million.
"Many entrepreneurs make their money through gray transactions," said Ma Jun, who manages the equivalent of US$100 million at E Fund Management Co in Guangzhou. "The implications from Zhou's case are likely wider than reported. More people and corporations are likely to be dragged into it."
Neither Zhou nor his wife Mao Yuping (
Officials at Shanghai Nongkai Development (Group) Co (
Granted, the unfolding property scandal in Shanghai hasn't hurt a planned Hong Kong share sale by Beijing Capital Land Ltd, the city government's developer. Investors say the company's political ties -- and the fact that it's government-owned, unlike Zhou's group -- may buffer Beijing Capital from any fallout.
The three China-listed companies linked to Zhou are Daying Modern Agricultural Holdings Co (
Daying and Hainiao both said their shares have been used as collateral for a 575 million yuan loan borrowed by closely held Huaxing Investment (Group) Co, which is in turn 72.8-percent owned by Nongkai, according to Daying. Daying pledged 15 percent of its shares, while Hainiao's contribution was 26 percent, the two companies said in separate statements.
Huaxing borrowed the money from Industrial Bank, a regional lender based in the Fujian provincial capital of Xiamen. Nongkai is listed on the bank's Web site as the lender's sixth-biggest shareholder.
The China-listed companies are distancing themselves from Zhou. Daying, a Shanghai real estate developer that was indirectly owned by Nongkai as recently as Nov. 21, said Zhou hasn't been a shareholder since Dec. 31.
Its dollar-denominated shares fell 6.3 percent yesterday, bringing its loss since May 26 to 15 percent.
Daying's controlling shareholder is now He Baoxin, who owns 58.9 percent of the company, according to a Daying statement yesterday in the Shanghai Securities News.
His stake comprises the 10 percent he owned before Dec. 31, and 48.9 percent formerly owned by Zhou, analysts said.
"It's not surprising that Daying is trying to wash off its links with Zhou, now that he is in hot water," said Ma Yilun, an analyst at China Communication Securities Co in Shanghai.
Shares of Hainiao, which sells and leases properties in Shanghai, fell 7.3 percent yesterday as they resumed trading after a two day halt, dropping to a 15-month low of 9.39 yuan.
Highlighting the murky ties between the companies and Zhou, two of the companies today published statements in the China Securities Journal, an official newspaper, that contradicted each other.
In one, Hainiao said its biggest shareholder is closely held Shang-hai Donghong Industry Investment Co, with a 26 percent stake. The company said Hainiao isn't part of Nongkai and isn't related to it in any way. In the other statement, Xugong said Donghong is indeed owned by Nongkai.
Shares of Xugong, which makes construction machinery, fell by their daily 10 percent limit in Shenzhen for the day this week, bringing their loss since May 26 to 42 percent.
Zhou made his billions starting in 1995 by buying shares from workers in as many as 60 companies before they went public, the Standard reported Wednesday.
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