Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Tech-focused investment bank China Renaissance is struggling to win business from start-ups and new money from investors as the detention of its influential founder Bao Fan enters its ninth month.
China Renaissance was once at the centre of the country’s tech boom, but the sudden disappearance of its founder and chief executive in mid-February, part of a crackdown by Beijing, has created uncertainty. A half-dozen people close to the bank said start-ups were hesitating to hire it, while investors were withdrawing capital or had stopped putting new money into its funds.
“We’ve advised our start-ups not to use China Renaissance,” said one Beijing-based investor at a midsized fund. “It is better not to work with them for the time being.”
To shore up its finances, the group has not paid a dividend, cut 115 employees, or 15 per cent of its staff, and moved to cash out earlier investments.
The woes of a bank that once led the country’s private dealmaking tables and has Rmb40bn ($5.5bn) of assets under management show the lingering effects of a tech crackdown, despite the Communist party’s recent charm offensive to reinvigorate the private sector, analysts said.
“Under Xi Jinping, a disproportionately large number of businesspeople have disappeared,” said Willy Lam, a senior fellow at The Jamestown Foundation. “It has darkened the horizon for ambitious young people in the tech sector. Now they would rather send their money overseas and leave China themselves.”
A week after China Renaissance revealed it was “unable to contact” Bao in February, the bank said he was co-operating in an investigation. The probe also involves the group’s former president Cong Lin. The whereabouts of both men remain unknown.
In Bao’s continued absence, the group promoted co-founder Kevin Xie to acting chief executive at the beginning of October. People close to the group said the hope was that Xie stepping in as CEO would help resolve a stand-off with longtime auditor Deloitte, which has refused to sign off on China Renaissance’s accounts until it can speak to Bao about the nature of his detention.
The lack of audited financial statements forced the group to suspend trading of its shares in April, threatening the bank with a delisting in 18 months’ time. Two people close to China Renaissance said it was also exploring changing auditors to resolve the issue.
Deals are also drying up. The group’s unaudited financial statements show investment banking revenue slumped to just Rmb112mn in the first half, from as much as Rmb742mn during the comparable period of 2021. “I almost had nothing to do in my past few months,” said one recently departed employee.
By June 30, committed capital promised by investors for China Renaissance’s investment funds had also fallen for the first time. In July, two well-known Chinese venture capitalists quit its board.
“No one is putting in new money,” said one person close to the bank’s executive team. “A lot of limited partners invested because of Bao Fan. It’s like having HongShan [the former Sequoia China firm] without [its leader] Neil Shen.”
The entire Chinese advisory space remains tough as global investors pull back from investing in Chinese stocks and start-ups. But people close to the group said the damage at China Renaissance was particularly stark, especially in tightly regulated areas such as underwriting public offerings.
The person close to management said the group was shifting focus away from IPO work and back to advising start-ups raising money, which was the centre of its business for a long time. However, data from research provider ITjuzi shows that such work has also started to slow. After several years of ranking among the top two advisers by the number of private financing deals put together, China Renaissance has fallen to the sixth most active bank this year, the data show.
Co-founded by Bao in 2005, China Renaissance branched out from connecting investors with start-ups to the more profitable business of advising on major tech mergers such as that of ride-hailing companies DiDi and Kuaidi and blockbuster public offerings including of delivery service Meituan, as well as building a wealth management business.
The group’s cash position fell from Rmb3.1bn at the end of 2022 to Rmb1.8bn on June 30, as the bank moved to repay $300mn owed to a group of mostly Chinese state-owned banks. Provisions for those loans allowed the banks to demand repayment if Bao was no longer the company’s chair. After Bao’s disappearance, the group said it had “voluntarily prepaid” the loans.
China Renaissance declined to comment.
Read the full article here
