Everbright Securities Continues to Bleed From Failed British Deal
Chinese state-owned brokerage Everbright Securities Co. Ltd. made loss provisions of 1.6 billion yuan ($231 million) in 2019, mostly to cover potential losses related to an ill-fated overseas acquisition.
The expected loss adds to 1.5 billion yuan of provisions the brokerage put aside in 2018, as the fallout from its disastrous investment in British sports media company MP & Silva Holding SA (MPS) continues to erode profit.
About 1.3 billion yuan of provisions were related to the MPS acquisition, and 264 million yuan was related to goodwill impairment in previous transactions, including Everbright’s acquisition of Sun Hung Kai Financial Ltd. in 2015, and 78.9 million yuan of debt that is expected to be unrecoverable, the company said Wednesday in a statement.
The brokerage said it expects to post a 450 million yuan increase in 2019 profit, or a gain of 436% from 2018. The significant improvement mainly reflects a lower comparison base after Everbright Securities’ profit plunged 97% in 2018 to 103 million yuan because of the MPS loss provisions.
The provisions were made out of the principle of accounting prudence and based on the company’s estimate of the financial status of the subjects involved in the MPS acquisition and development in the lawsuits related to the acquisition, an executive at Everbright Securities told Caixin.
In May 2016, Everbright Capital Investment Co. Ltd., a subsidiary of Everbright Securities, jointed a consortium that bought a 65% stake in MPS for 5.2 billion yuan. The deal took place at a time when Chinese companies were scrambling to snap up overseas businesses, many of which subsequently turned out to be duds.
In October 2018, MPS was declared bankrupt and liquidated. While Everbright Capital was a junior partner in the consortium and made a minority investment in the deal of 60 million yuan, it ended up owing about 3.5 billion yuan to two senior-tranche partners in the consortium, according to the brokerage’s 2018 annual report.
Everbright Capital has been sued by the two partners, China Merchants Bank Co. Ltd. and Shanghai Huarui Bank Co. Ltd., seeking 3.5 billion yuan of compensation for failure to recoup their investments with promised returns. The lawsuits are still ongoing. The Everbright executive told Caixin that the provisions do not mean that the company will assume relevant responsibilities or give up relevant rights in relation to the lawsuits.
Everbright Securities is also seeking compensation from Baofeng Group Co., another partner in the consortium. Baofeng had promised to buy MPS shares from the other investors in the consortium within 18 months of the takeover deal’s closure, but it never followed through on the pledge.
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