Summary
- Bao’s disappearance follows other incidents of missing executives
- President Xi Jinping initiates anti-corruption campaign
- China Renaissance’s share rebounds from record low hit on Friday
The disappearance of a top Chinese dealmaker has left his bank grappling to reassure clients and staff, people familiar with the matter said on Monday, and has elevated concerns about “key man risk” for investors.
Shares of China Renaissance Holdings (1911.HK) plummeted by as much as 5% on Monday, following an all-time low in the previous session after the investment bank said it was unable to contact its founder, chairman, and CEO Bao Fan.
The stock ended the day higher 0.1% in the Hong Kong market which gained 0.8%.
Though the reasons for Bao’s disappearance are unknown, his case follows a string of incidents in which high-profile executives in China have disappeared with little explanation during a sweeping anti-corruption campaign initiated by President Xi Jinping.
Some of them re-emerged as abruptly as they vanished.
China Renaissance said on Thursday in a stock exchange filing that it had no knowledge that Bao’s “unavailability” was related to its business, and that its operations were going on as usual.
China Renaissance co-founder Kevin Xie and its investment banking chair, Wang Lixing, who are heading the company in Bao’s absence, have implored staff not to believe or spread rumours, according to two sources and copies of their messages to staff viewed by Reuters.
“At such a critical moment, everyone should trust the company. Don’t fret and stumble. It’s OK to encounter some difficulties in the short term,” Wang said in his message posted on the company’s WeChat group on Friday.
According to two sources and some media reports, authorities took Bao away earlier in February to help in an investigation into a former colleague, Cong Lin, the company’s former president.
All the sources, who are familiar with the matter, declined to be named because of its sensitivity.
A spokesperson for Beijing-based China Renaissance would not comment on specific details and referred Reuters to its exchange filing made on Thursday.
Xie and Wang failed to immediately reply to Reuters’ requests for comment on Monday.
Beijing’s public security bureau also failed to reply to the request for comment. Asked during a daily news conference on Friday whether the banker had been arrested, Foreign Ministry spokesperson Wang Wenbin said he did not know the situation.
The Hong Kong-listed stock, which rose as much as 3.5% early on Monday, reversed all those gains and dropped to as low as HK$6.82. It hit a record low of HK$5 on Friday but later recovered some ground to close at HK$7.18, a 28% fall.
‘Key Man Risk’
Bao, also China Renaissance’s majority shareholder, founded the company in 2005 as a two-person team, aiming to match capital-hungry startups with venture capitalist and private equity investors.
It company later branched out into services including underwriting, sales, and trading.
Known to be well-connected in the corporate world, Bao was involved with tech mergers including food delivery giants Meituan (3690.HK) and Dianping, the tie-up of ride-hailing firms Didi and Kuaidi, and travel platforms Qunar and Ctrip (9961.HK).
“What happened to China Renaissance highlighted the key man risk with some Chinese companies,” Li Nan, professor of Finance at Shanghai Jiaotong University, said.
“A group of Chinese financial institutions rose quickly over the past few years on one to two controllers’ efforts, while it makes these companies particularly vulnerable to any negative headlines that show the controllers are in trouble.”
Key man risk generally alludes to the threat posed to a company from over-reliance on a limited number of personnel for decision-making.
While it is usual in China for authorities to take away business executives for various reasons, Bao’s disappearance happens against the backdrop of over two years of massive regulatory crackdown on technology firms.
“This should once again remind foreign investors of the relative level of regulatory and governance risk associated with Chinese equities,” said Propitious Research analyst Wium Malan, who publishes on the Smartkarma platform.
