Missing Tycoon Mars Overseas Push of China’s Private Businesses
Even by the standards of China’s rough and tumble breed of entrepreneurs, billionaire Liu Han’s brushes with death mark him out.
After dodging a hitman’s bullets in 1997, which led to the execution of a rival tycoon and two of his relatives almost a decade later, Liu, 47, finds himself ensnared in more killings. This time, his own brother is the suspect, and the Sichuan Hanlong Group founder is being held by police for helping him evade capture over a 2009 triple murder, state media reported.
The arrest throws into jeopardy Hanlong’s planned mining investments, casting doubt on the future of Sundance Resources Ltd. (SDL)’s $4.7 billion iron-ore project in West Africa and General Moly Inc. (GMO)’s Mt. Hope, Nevada, molybdenum mine. His detention still hasn’t been confirmed by authorities and there has been no official indication of who is now running Liu’s empire, which spans energy, real estate, chemicals and technology.
Liu’s rise to riches and sudden disappearance aren’t just the makings of a made-for-Hollywood potboiler. They’re a warning of the risks investors take when dealing with opaque private businesses in China, where fortunes depend on political ties and the favors of state entities, and even the wealthiest entrepreneurs can vanish if they lose the patronage of powerful government allies.
Investors “have to be clear about what kind of person they are dealing with, what is their background, and what is their political relationship with the current system,” said Ronald Wan, chair professor at Renmin University of China. “There are different camps, different interest groups.”
According to a March 20 report in Shanghai Securities News that cited unidentified people familiar with the matter, Liu and his ex-wife were detained in Beijing at the end of the annual meeting of China’s legislature. At that meeting, Xi Jinping took over as president and Li Keqiang as premier with a pledge to fight corruption and abuses of power.
The case may be “politically well-timed” to show their determination and signal that even the rich aren’t immune, said Willy Wo-lap Lam, an adjunct history professor at Chinese University of Hong Kong.
The once-in-a-decade transition of power was roiled by the purge and detention of Bo Xilai on suspicion of graft and involvement in the murder of a British businessmen. The ouster was made more shocking because of Bo’s pedigree: a member of the ruling Politburo, governor of Chongqing municipality and son of one of China’s founding revolutionaries, Bo Yibo.
By his own account in a rare 2010 interview, Liu is from more humble stock, the son of teachers from Guanghan city in the western province of Sichuan. Arriving for the meeting in a Ferrari and wearing a fur coat, Liu told the Wall Street Journal how he made his seed money speculating on steel pipes while still in his 20s, parlaying that into a fortune trading on China’s newly created and chaotic markets in the early 1990s.
Today, Liu’s web of businesses includes five publicly traded companies -- Sichuan Jinlu Group Co. in China, the rest overseas -- and more than 30 closely held units, Hanlong’s website shows. By 2010, the group, founded the year of the botched hit, had more than 12,000 employees worldwide and more than $2.5 billion in revenue. Liu ranked the 314th richest person in Greater China, with wealth of about $1 billion as of February 2013, according to Shanghai-based Hurun Report.
At home, Liu was best known for his philanthropy. He sits on the board of poverty-relief charity China Glory Society with Hangzhou Wahaha Chairman Zong Qinghou, whose $22 billion fortune makes him the country’s richest man, according to the Bloomberg Billionaires Index. Dalian Wanda’s Wang Jianlin, the man behind last year’s $2.6 billion takeover of U.S. cinema operator AMC Entertainment Holdings Inc. and the nation’s second-wealthiest, with $9 billion, won an award from the group.
Hanlong’s first overseas acquisition of public companies began in 2009, with a $200 million investment to take control of Perth-based Moly Mines Ltd. (MOL), and a commitment to procure about $500 million in funding to develop the company’s Spinifex Ridge molybdenum and copper project. Hanlong said it wanted to invest between $3 billion and $5 billion in mineral assets.
Five months later, Liu agreed to pay an initial $40 million for 12.5 percent of General Moly, the Lakewood, Colorado-based owner of two molybdenum projects in Nevada. A further $40 million investment and $665 million in funding were pledged. The investments, had they followed through to production, would have made Hanlong among the world’s biggest suppliers of the additive used to strengthen steel.
Uranium was also a target: Hanlong invested in Marenica Energy Ltd. (MEY) in November 2010, and now holds 30 percent of the Perth, Western Australia-based explorer with the rights to Namibian deposits that may contain ore worth about $2.6 billion at today’s prices. Hanlong’s interest in Africa continued the following year with an A$143 million ($149 million) bid for Bannerman Resources Ltd., which also holds Namibian deposits.
A week later, Liu made his initial A$1.65 billion offer for the rest of Sundance Resources to gain control of the company’s rail, port and iron-ore project straddling Cameroon and Congo. The slump in iron-ore prices since then prompted Hanlong, which already has a 14 percent stake in Sundance, to cut its offer to A$1.14 billion.
Perth-based Sundance this week said the takeover isn’t likely to succeed as Liu hadn’t been able to secure financial backing before a deadline. General Moly’s spokesman Zach Spencer said China Development Bank, Hanlong’s lead lender, has suspended work on its loan to the company, and there has been no new information. Marenica’s (MEY) financial viability is doubtful if it can’t find new funding, the company said in its latest annual filing. The shares have slumped 80 percent since Hanlong’s investment.
Nelson Chen, Liu’s most senior Sydney-based executive and a director of Marenica, General Moly and Hong Kong units of Hanlong, had left for Beijing to seek clarification on Liu’s status, said Chris Yang, an executive also in Sydney. Efforts to reach Hanlong officials in China were unsuccessful. A spokeswoman at Sundance who declined to give her name citing company policy said that the company had no new information on Liu.
At the time of Hanlong’s 2009 international debut, public opposition to resources acquisitions by Chinese state-owned companies was mounting. Australia blocked China Nonferrous Metal Mining Group’s bid for Lynas Corp., a miner of rare-earth minerals over which China has a global stranglehold. Yanzhou Coal Mining Co. won approval for its $3 billion takeover of Felix Resources Ltd. only on condition it remained an Australian-operated company with locally based top executives.
Hanlong, as well as its targets, were keen to play up the group’s independence from state control.
“As a privately held Chinese company we can offer enormous value to Moly shareholders as well as the Australian people,” Hanlong’s Sydney-based Managing Director Steven Hui Xiao said in a statement announcing the 2009 acquisition. Moly Managing Director Derek Fisher described Hanlong as “a highly respected substantial private Chinese group.”
Only, as Liu’s case underscores, all major Chinese overseas acquisitions need the approval of government regulators, including the National Development and Reform Commission -- the agency that oversees China’s strategic economic objectives. In Liu’s case, the deals also depended on funding from lenders including China Development Bank, whose mission is to make loans that further government policy.
Beijing-based CDB, the largest policy bank in the world, didn’t respond to a fax and e-mail seeking clarification of its lending commitments to Hanlong.
Entrepreneurs who flourished during communist China’s experiment with market-oriented reforms needed access to state assets, bank loans, licenses, land grants and other advantages within the purview of government officials.
“There’s always some kind of backdoor dealings,” said Huang Jing, a political science professor at the National University of Singapore, adding that he wasn’t commenting on Liu in particular. “There must be something that cannot be put in the sunlight.”
Such as the events surrounding the 1997 assassination attempt.
Yuan Baojing, once worth 3 billion yuan, was put to death in 2006 along with his brother and cousin for the murder of a man who threatened to expose their attempt to kill Liu, state- run Xinhua News Agency reported at the time. Yuan was said to blame Liu for losses on investments, Xinhua said.
Yuan’s Tibetan wife, Zhuoma, alleged the trial was rigged. Her husband was rich, had lost money on business dealings before, so why would he risk his life by murdering a businessman he had never met, she told the state-run Beijing Times.
Now the tables may have turned for Liu. A March 22 Xinhua report posted on the website of China’s Ministry of Public Security named a suspect in the 2009 triple murder as Liu Yong and said his brother, Liu Han, was being investigated for harboring him. A man named Liu Yong incited gunmen to kill three people at an outdoor teahouse in Deyang, Sichuan, the agency reported at the time.
The latest article said Liu Yong was from Guanghan, which Liu Han said was his home town in a 2008 Hong Kong filing.
A woman in the president’s office of Sichuan Jinlu, who would only give her surname as Long, said the man being investigated was the company’s chairman. That confirmed reports in state media including the Communist Party-owned Global Times.
It’s not uncommon for businessmen to be detained without charge and with no public acknowledgment from authorities.
Dalian Shide Group’s billionaire chairman, Xu Ming, has been missing since failing to turn up at last year’s Bo’ao Forum on Hainan island. Xu, a close ally of Bo Xilai, was placed under government “control” as part of an investigation into an “economic case,” a magazine controlled by Xinhua reported. In September, Xinhua released allegations made in another man’s trial that Xu paid bribes to Bo and his family.
Businessmen “have to cultivate political ties and sometimes corruption is presumed,” said Chinese University’s Lam. “It’s a very tricky business. The Bo Xilai case illustrates that if their major patron is exposed then they need to cover themselves.”
Attempts to reach the police met with no response and they haven’t said whether he has been charged.
It’s not impossible for Liu to emerge from his detention unscathed, according to a banker who has met him and is familiar with his political connections. He declined to be identified because of the sensitivity of the case.
Liu Ming Hui, who is not connected to Hanlong’s Liu, last year won back control of China Gas Holdings Ltd., 20 months after he was ousted following his arrest in Shenzhen on suspicion of embezzlement. Police didn’t press charges because “evidence was insufficient,” China Gas said in July.
Liu Han’s cousin, Liu Canglong, is a member of the country’s national political advisory body, the Chinese People’s Political Consultative Conference. He’s also a billionaire in his own right, with a combined net worth with brother Liu Hailong of 14.5 billion yuan, according to Hurun.
Liu Canglong’s Sichuan Hongda Group won a $3 billion coal and iron-ore concession in Tanzania in 2011. A Sichuan CDB branch official attended the signing ceremony in Dar es Salaam. The bank last year agreed to provide Sichuan Hongda $2.5 billion in “financial cooperation services.”
Zhou Yongkang, who retired from the Politburo standing committee and as head of China’s internal security services late last year, visited Sichuan Hongda in March 2001 when he was party secretary of the province -- the most senior official. Liu Canglong was “an entrepreneur who carries out his work with vigor and vitality,” Zhou said, according to the company’s website.
Such inspection tours and the scripted praise handed out by senior party officials are widely seen as indicators of influence.
Sichuan Hongda Group is also the largest shareholder in Liu Han’s flagship listed company, Sichuan Jinlu. The second-largest shareholder is an entity that manages local government assets in the province, data compiled by Bloomberg show. Liu Han himself is a member of Sichuan’s advisory body.
Those political ties may have meant that when Liu went shopping for assets in Australia he felt able to pledge backing from state banks.
The feel-good gloss soon wore off.
In September 2011, Australia’s securities regulator froze the assets of Hanlong’s Xiao as part of a probe into insider trading in companies including Sundance and Bannerman. He later fled to China, leaving his wife behind after she surrendered her passport to ensure he returned. Xiao and others allegedly transferred profit of A$1.2 million to Hong Kong, and the money hasn’t been found, a Sydney court heard in December.
Former Hanlong executive Calvin Zhu was last month sentenced to 27 months in prison for the offense. The Australian Securities & Investments Commission also said on its website that it’s investigating other people associated with Hanlong and won’t make further comments on that probe.
A month after the insider trading allegations aired, in October 2011, Liu’s financing pledges began to fray.
CDB wanted “additional due diligence” before committing to finance the Bannerman deal, the Australian company said in an Oct. 24, 2011, stock exchange filing. “No further engagement has occurred with Hanlong since that time,” it said Sept. 25. CEO Len Jubber declined to comment when contacted during a business trip to Canada this week.
Even Liu’s biggest success at overseas financing has soured: after securing funds to develop Spinifex Ridge, the project is “on hold pending more favorable economic conditions,” according to Moly’s website. The $494 million CDB loan facility for the project expired in May, and Hanlong “has advised it will not be in a position to financially support an acquisition” until the second half of 2013, Moly said in its annual report released yesterday.
China’s opaque legal system and lack of government transparency mean investors who bet on Liu’s success may never know whether he was caught up in power play, or just caught on the wrong side of China’s shifting policy on resource acquisitions.
“The Chinese economy, including the private sector, is policy driven,” said Wan of Renmin University’s. “Foreign investors have to be sure about the direction that the Chinese government wants to go.”
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