Caixin
Sep 09, 2016 07:20 PM
POLITICS & LAW

Government Considers Restructuring of Funde Sino

(Beijing) — Funde Sino Life, one of China's largest life insurers, is facing a possible forced restructuring by regulators as they comb through the company's operations for risk and signs of illicit dealings, according to people close to the investigation.

Among the options the China Insurance Regulatory Commission (CIRC) is considering regarding troubled Funde is a restructuring that would likely diversify its share ownership structure, possibly diluting the holdings of its controlling shareholder, former Funde Chairman Zhang Jun. The move could also reform its business line, which relies heavily on risky, short-term investment-type insurance policies, the sources said.

Funde did not respond to a request for comment.

Funde is one of a number of private insurance companies in China that rose from obscurity to prominence in only a few years by selling controversial policies that the CIRC has moved recently to curtail. The premiums it received last year totaled 160 billion yuan ($24 billion), up more than 100 percent from the previous year. It now ranks behind only state-owned China Life Insurance Co. and Ping An Life Insurance Co. in premium income.

Funde has used premiums to help fund aggressive equity investments into other financial institutions and listed companies, buying nearly 30 percent of Shanghai-listed property developer Gemdale Corp. and snapping up more than 5 percent of another six listed companies. This tactic has raised concerns, as experts, including some CIRC officials, criticized it for creating huge liquidity risks.

Funde suffered a net loss of nearly 3 billion yuan in the first six months of this year.

The proposal for restructuring was filed to the regulator by a team of officials and accounting experts that have been stationed in Funde since May to examine its books. The move came after Zhang was detained in February by authorities for connections to a disgraced former Guangdong province government official. The status of the investigation against Zhang is unclear.

Through a complex structure, Zhang controls more than 90 percent of Funde's equity shares, flouting the CIRC's requirement that caps the ratio at 51 percent.

The lack of a diversified, transparent share ownership structure is one reason some insurance companies had been able to expand rapidly with sales of risky products and risky investments, CIRC Vice Chairman Chen Wenhui said recently at an internal work meeting. A more diversified board of directors might have attempted to rein in such risky investments.

The team of CIRC officials has examined multiple aspects of Funde's operations with emphasis on its share ownership structure, transactions with related parties, cash flows and investments, according to the sources.

Apart from restructuring, the team also suggested alternative solutions for top officials at the CIRC to choose from, but it's unclear what they are.

Contract reporter Wang Yuqian at yuqianwang@caixin.com; editor Ken Howe at kennethhowe@caixin.com

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