Caixin
Jul 17, 2021 06:10 AM
FINANCE

China Extends Takeover of Nine Tomorrow Holding Units

The China Banking and Insurance Regulatory Commission (CBIRC) said its custody of six insurers and trust companies will last until July 16, 2022
The China Banking and Insurance Regulatory Commission (CBIRC) said its custody of six insurers and trust companies will last until July 16, 2022

Chinese regulatory authorities extended the one-year takeover of nine Tomorrow Holding affiliates for a second year as they continue efforts to defuse financial risks associated with the embattled private conglomerate.

The China Banking and Insurance Regulatory Commission (CBIRC) said its custody of six insurers and trust companies will last until July 16, 2022, to “further promote risk disposal work and defuse financial risks.”

In a separate statement, the China Securities Regulatory Commission said it will similarly extend its takeover of New Times Securities, Guosheng Securities and Guosheng Futures.

Citing lawbreaking, regulators carried out a massive July 2020 seizure of the nine companies, which were formerly controlled by fallen tycoon Xiao Jianhua. The companies had assets amounting to nearly 1 trillion yuan ($142.8 billion), according to Caixin calculations based on financial reports.

The seizure marked a major step in dismantling a sprawling business empire built by Xiao under the umbrella of Tomorrow Holding Co. Ltd., one of the highest-profile targets of China’s crackdown on financial risks.

Xiao, once one of China’s richest men, was placed under graft investigation by Chinese authorities in January 2017. Chinese authorities haven’t disclosed the specifics of the investigation.

During the takeover, banking regulators “have actively conducted onsite inspection and pushed forward the asset assessment of those firms, figured out the basic situation of the risk they contained, and maintained normal operation of their daily businesses to protect investors’ interests,” the CBIRC said in a statement.

The six institutions under CBIRC control are Tianan Property Insurance Co. of China, Huaxia Life Insurance Co., Tianan Life Insurance Co., Yi’an P&C Insurance Co., New Times Trust Co. and New China Trust Co.

Founded in 1999, Tomorrow Holding grew into a conglomerate with businesses as diverse as banking, securities, insurance, coal and real estate. Through complicated and sometimes illegal shareholding arrangements, Tomorrow Holding controlled a large number of financial institutions that helped fund Xiao’s debt-driven business expansion. Caixin learned that Tomorrow Holding-affiliated companies left nearly 400 billion yuan of unpaid debts.

In 2018, China’s central bank identified Tomorrow Holding as one of several “financial holding companies” that needed to be scrutinized in their ownership structure, connected-party transactions and sources of funding as part of a sweeping clampdown on financial risks.

The nine companies formed a key part of the Tomorrow Holding financial business that backed many of its high-profile acquisitions, which often involved complicated transactions and the use of shell companies.

Many of the financial institutions had funds embezzled by Tomorrow Holding, which ended up failing to repay the money, creating significant risks for the institutions and their clients, sources close to regulators told Caixin.

In 2019, the top banking regulator took over Inner Mongolia-based Baoshang Bank, a debt-ridden lender controlled by Xiao. The bank was later declared bankrupt and part of its assets were restructured into Mengshang Bank.

Several other regional lenders previously controlled by Tomorrow Holding, including Bank of Taian Co. Ltd., Bank of Weifang Co. Ltd. and Harbin Bank Co. Ltd., launched government-led restructurings to cut ties with the troubled conglomerate.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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