Court to Auction Shares Held by Unit of Fugitive Billionaire Guo Wengui

A listed Chinese securities firm will see nearly 1.1 billion of its shares auctioned off by a court in a punitive measure for an illegal business transaction by its second-largest shareholder, which is controlled by fugitive billionaire Guo Wengui.

A court in the northeastern province of Liaoning will auction the shares of Founder Securities Co. Ltd. (601901.SH) held by Beijing Zenith Holdings Co. Ltd., according to an exchange filing (link in Chinese) released Friday by the broker. The 24-hour auction will be held starting 10 a.m. on June 19, according to the statement.

Beijing Zenith, a property developer controlled by Guo Wengui, holds 1.8 billion shares, or 21.86% (link in Chinese), of Founder Securities. The remaining 710 million shares will be used to repay trust loans offered by China Cinda Asset Management Co. Ltd., according to the filing.

The starting bid will be based on the stock’s average closing price for 20 trading days prior to June 19, according to the auction notice (link in Chinese).

The auction is the latest in a series of disposals of Guo’s assets. In 2018, Beijing Zenith was fined 60 billion yuan ($9.3 billion) for the crime of coercive transaction, according to a court verdict (link in Chinese). The court said the company’s illegal gains from equity investment in Founder Securities would be confiscated.

Prosecutors alleged that in 2010, Guo and others used coercive measures to press China Minzu Securities Co. Ltd.’s largest shareholder, state-owned Capital Airports Holding Co., to set unfair conditions in its offer to sell a 61.25% Minzu stake and make Beijing Zenith the only qualified bidder. In August 2014, Founder Securities acquired (link in Chinese) Minzu, and then Beijing Zenith became the second-largest shareholder of Founder Securities.

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The case has brought to light details of how Guo leveraged government connections in his financial dealings, a strategy he repeatedly used to accumulate a fortune before he fled China in 2014 to avoid graft investigations. Chinese prosecutors have launched investigations into a series of cases of suspected bribery, embezzlement and fraud involving Guo and his companies. Guo is believed to be living in the U.S.

Founder Securities’ largest shareholder, state-owned Peking University Founder Group Corp. (PUFG), directly holds a 27.75% stake. After PUFG defaulted on a 2 billion yuan bond in December 2019, the company attributed its worsening financials partly to long-running business disputes with Beijing Zenith, from which it failed to claim 14 billion yuan of account receivables.

Debt-ridden PUFG, which is undergoing bankruptcy restructuring, may sell its securities assets to Ping An Insurance (Group) Co. of China Ltd. (601318.SH). The Chinese insurance giant is considering merging its Ping An Securities Co. Ltd. with Founder Securities, knowledgeable sources told Caixin.

Contact reporter Luo Meihan (meihanluo@caixin.com)

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