China Minsheng Investment Group (CMIG) recently failed to make a bond repayment.
The group was jointly set up by 59 businessmen in 2014. Chinese Premier Li Keqiang attended the signing ceremony back then, underlying the central government’s hope that it would become one of the nation’s largest private-sector champions.
Sadly, things didn’t work out as planned. CMIG missed a deadline on Jan. 29 to redeem a maturing bond worth 3 billion yuan (US$443.87 million).
According to reports, it is urgently seeking to dispose of a stake in a land plot in Shanghai to settle the obligation.
But that is only a stop-gap measure. It’s estimated that the company has an outstanding debt of over 200 billion yuan, of which more than 50 billion will be due this year.
CMIG only reported a revenue of 24.7 billion yuan in the first nine months of last year.
The company is led by the All-China Federation of Industry and Commerce, an organization aimed at linking the Communist Party and the government with the private sector.
The Communist Party is trying to motivate entrepreneurs by offering them policy incentives. One of the beneficiaries of these incentives is CMIG.
Led by prominent businessman Dong Wenbiao, CMIG lists a group of star entrepreneurs.
CMIG was once dubbed China’s version of the Singapore state investment firm Temasek Holdings. It had sought to combine state support with the efficiency of private firms to focus on strategic investments in finance, steel, solar energy and shipbuilding.
However, the company failed to live up to expectations. Despite its seemingly strong connections and government backing, CMIG is not a state firm, which means it has to pay high interest rates for loans.
Worse, most of the areas it is focusing on are capital-intensive.
An ownership structure with 59 famous entrepreneurs was supposed to be its strength. In reality, however, each of them only holds 2 to 3 percent of the company. That means each investor has a limited say in the decision-making process.
Having only small stakes in CMIG, the entrepreneurs must have felt that they don’t need to put in too much of their time and resources in the company.
This article appeared in the Hong Kong Economic Journal on Feb 15
Translation by Julie Zhu
[Chinese version 中文版]
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