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Categorized | Insurance

China corporate raider Baoneng in new boardroom battle

Posted on November 20, 2016

Baoneng Group, the swashbuckling insurance conglomerate controlled by China’s fourth richest man, has waded into another boardroom battle, months after pursuing a hostile takeover of China’s largest residential developer.

Shares in glass producer CSG Holding rose as much as 21 per cent in Shenzhen last week following the resignation of its chairman, chief executive, chief financial officer, four vice-presidents and two independent directors. The biggest gains came after Baoneng published a letter to CSG employees accusing CSG executives of misconduct and announcing a series of strategy changes and optimistic growth targets.

The incident marks the latest tussle between corporate management and activist shareholders. Such battles were rare in China until recently, but the rapid ascent of cash-rich insurers has emboldened them to play the role of corporate raiders. Yao Zhenhua, the reclusive founder of Baoneng, ranked fourth on Hurun Report’s annual China Rich List in 2016 with estimated wealth of $17.2bn, up from 204th a year earlier.

Earlier this year, Baoneng sought to replace the board of property developer China Vanke after becoming its largest shareholder through unsolicited stock purchases on the secondary market. The moves prompted Vanke’s chairman to label Baoneng a “barbarian”.

A day after Baoneng’s letter to CSG employees last week, CSG issued a statement through the stock exchange clarifying that the Baoneng letter “was not really issued by the company” and that Baoneng only “used the format” of an official CSG disclosure. Some local media reports gave the impression the letter came from the company. CSG’s management added that the company was operating normally, despite the string of resignations.

Baoneng is CSG’s largest shareholder, controlling 24.3 per cent of the company through various affiliates. Executives from Baoneng-controlled Foresea Life Insurance have taken over from the departed CSG executives, the official Securities Times reported on Friday. Baoneng said in its letter that it aimed to increase CSG’s profits to more than Rmb10bn but gave no timeframe. CSG earned Rmb620m in 2015.

“CSG’s leading position in float glass, deep processing, solar energy and ultra-thin glass is inseparable from the strength of its management team. How this huge earthquake among top management affects daily operations needs to be closely watched,” Qiu Youfeng, construction materials analyst at Haitong Securities, wrote on Friday. “It is not obvious what Foresea Life’s intentions are.”

Baoneng also pledged in its letter to provide funding support to CSG. Baoneng has considerable cash at its disposal because Foresea is one of several once-obscure insurers that have quickly scaled the premium rankings through aggressive sales of universal insurance policies. Anbang Insurance, which has acquired a string of global prestige assets over the past three years, has followed a similar strategy.

The products have attracted scrutiny from regulators this year because they are essentially wealth management products rather than traditional protection-style insurance policies.

On Friday, Shenzhen’s securities regulator sent a letter to CSG noting media reports about a “battle for control” and “instability” at the company, according to a CSG exchange filing. In language that hinted at regulators’ unease over rancorous boardroom disputes playing out in public, the letter urged the company to “maintain goodwill communication” and “negotiate in a friendly way”.