Caixin
Dec 07, 2020 07:35 PM
BUSINESS & TECH

Moutai Shareholders Plan Lawsuit Over $122 Million in Donations to Local Governments

A group of Kweichow Moutai shareholders plan to file a class action lawsuit over the donations, which could “hinder their interests,” one of the shareholders told Caixin.
A group of Kweichow Moutai shareholders plan to file a class action lawsuit over the donations, which could “hinder their interests,” one of the shareholders told Caixin.

Hundreds of shareholders at liquor-making giant Kweichow Moutai Co. Ltd. plan to file a class action lawsuit over its 800 million yuan ($122.5 million) in donations to local government infrastructure projects.

The Shanghai-listed company’s board of directors has decided to donate 260 million yuan to the government of its hometown of Renhuai, Southwest China’s Guizhou province, and 546 million yuan to the government of neighboring Xishui county, the company said in an Oct. 26 filing (link in Chinese) with the exchange.

The donations will go toward the construction of a sewage plant in Renhuai and road-building in Xishui, which the filing said will help Kweichow Moutai reduce its logistical costs once completed.

A group of Kweichow Moutai shareholders plan to file a class action lawsuit over the donations, which could “hinder their interests,” one of the group told Caixin. As of Dec. 4, more than 230 shareholders had signed up to participate in the lawsuit, the source said.

The shareholder said Kweichow Moutai’s articles of association don’t authorize the board to decide on donations and the decision may have required the approval of a general meeting of shareholders.

Kweichow Moutai did not directly comment on Caixin’s questions about the matter.

This not the first time Kweichow Moutai has given handouts to local governments and other state-owned enterprises.

In September, its state-owned parent — China Kweichow Moutai Winery Group Co. Ltd. (Moutai Group) — announced a plan to issue up to 15 billion yuan in bonds to help another local government-owned company in Guizhou repay its debts.

In December 2019, Moutai Group transferred part of its controlling stake in Kweichow Moutai to Guizhou State Asset Management, a provincial government-backed investment vehicle. The transfer of about 57 billion yuan of equity was intended to help alleviate the province’s debt pressures and set an example of how local governments could leverage their state-owned assets to address debt problems.

Dong Yizhi, a lawyer with Joint-Win Partners in Shanghai, said that Kweichow Moutai’s rules say that the board is allowed to decide on deals worth less than 50 million yuan if they involve important cooperation, acquisition, asset sales and equity transfer, but don’t directly mention donations. That means that the company lacks a sound governance mechanism, but it probably hasn’t violated any regulations or laws, he said.

A source at a securities firm said Kweichow Moutai’s articles of associations are vague on donations, and it’s unclear if they require a general meeting of shareholders to review them.

Tang Ziyi and Han Wei contributed to this report.

Contact reporter Timmy Shen (hongmingshen@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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