China Renaissance reborn without rainmaking founder Bao Fan

The privately owned investment bank’s shares lost two-thirds of their value when trading resumed after a suspension of more than a year

Key Takeaways:

• China Renaissance shares plunged 66% in their first trading day after a 17-month suspension tied to the disappearance of former Chairman Bao Fan
• The company’s revenue fell 37% in 2023, and by another 39% in the first half of this year, according to newly results released just before the trading resumption

By Xiao Lin

China Renaissance Holdings Ltd. (1911.HK) has defused a ticking time bomb – though not without some major damage to its Hong Kong-listed stock.

After appointing a new chairman and CEO earlier this year, the privately owned Chinese investment bank finally published three long-delayed financial reports late last week and resumed trading on Monday, narrowly avoiding an 18-month suspension and potential delisting.

But the return to trading was hardly cause for celebration. The stock plunged by nearly 72% in the first trading hour and closed down 66% at HK$2.45. At that level, the company is just a shadow of its former self, with its market value down over 90% from a peak a few years ago.

Such dramatic falls have become common for overseas-listed Chinese stocks these days, many dragged down by a slowing economy and U.S.-China tensions. Regulatory crackdowns on a wide range of sectors and an ongoing anti-corruption campaign also continue to rattle the market from time to time.

China Renaissance, which has helped to fund many of China’s tech giants, has been beset by turbulence since early last year when its high-profile co-founder Bao Fan went missing. The company acknowledged that Bao was cooperating in an unspecified investigation, which often points to corruption probes. He hasn’t been seen publicly since then.

Bao’s absence made it impossible for the company to sign off on its earnings reports, leading to the trading suspension. It finally announced that Bao had resigned from the company in February this year, and was replaced by co-founder Xie Yijing. That paved the way for trading to resume after the company filed its backlog of missed earnings reports.

The resumption allows China Renaissance to avoid delisting. But the big first-day selloff, while reflecting stock movements that would have happened over the 17-month suspension period, also suggests more challenges ahead.

Despite his resignation as chairman, Bao remains the company’s controlling shareholder with 48.71% of its shares. That means he will continue to have significant influence.

Zhonghui Anda CPA, which replaced Deloitte Touche Tohmatsu as the company’s auditor last December, also raised concerns related to Bao’s status in the latest earnings reports. In the last quarter of 2023, China Renaissance paid more than 77 million yuan ($11 million) to Chinese authorities in connection with the investigation Bao is assisting in. The auditor stated it hasn’t obtained sufficient evidence that the amount is recoverable.

The newly released financial results also paint a gloomy picture for the company. China Renaissance’s revenue fell by about 37% in 2023 and by another 39% in the first half of this year compared with year-ago periods. Its investment management and investment banking businesses took the hardest hits. Revenues from its equity underwriting business grew by over eight times in the first half of this year, but that was from a very low base.

By comparison, Hong Kong-listed shares of CICC (3908.HK; 501061.SH), a leading state-owned Chinese investment bank believed to be in a stronger position, have fallen by over 48% during the period of China Renaissance’s trading suspension. Its total revenue and other income dropped by a much milder 5.2% last year and by 20% in the first half of this year.

Glory days of Bao era

The 53-year-old Bao was crucial to China Renaissance’s rise. Bao was born in Shanghai and, like many of his successful peers in China’s investment banking sector, he studied abroad and worked at leading global investment banks, including Morgan Stanley, before returning to China in the early 2000s to start his own firm.

He befriended many influential figures in China’s tech sector in their early days, including JD.com founder Richard Liu and Zhou Hongyi of Qihoo 360. According to media reports, Bao came to the rescue when Liu was struggling with his Series C funding in 2011. Bao also introduced Liu to his old friend Yuri Milner, founder of investment firm DST Global, known for its early investment in Facebook.

In 2015, Bao was named one of the 50 most influential figures that move markets or shape ideas and policies by Bloomberg, which described him as a ‘tech builder’ with connections to arrange practically anything in China’s then-vibrant tech scene. His credits included the $6 billion merger of Didi Dache and Kuaidi Dache to form the current DiDi Global, often called the Uber of China, in the country’s biggest internet M&A deal of 2015.

China Renaissance listed in 2018 in a golden era for China tech when the country was producing unicorns faster than the U.S. That same year, China Renaissance advised and underwrote the IPO for Meituan, in Hong Kong’s third-largest new listing of 2018.

But times changed, and the connections that once underpinned Bao’s success have now become headaches.

China’s tech sector that once drove Bao’s success has come under government scrutiny since late 2020 over its freewheeling ways. China Renaissance was one of the underwriters for DiDi Global when it briefly listed in the U.S. in early 2021, only to be forced to delist not long afterwards for failing to get necessary clearance from China’s internet regulator.

Geopolitical tensions are also making it harder for Chinese companies to seek funds from the U.S. And China’s own slowing economy is also making Chinese companies less attractive to global investors, sending new listings in Hong Kong to their lowest level in 20 years last year.

Post-Bao Era

After so much turbulence, what’s next for China Renaissance remains a big question.

According to media reports, Bao has been assisting in an investigation related to the firm’s former Chairman Cong Lin, who was previously chairman of ICBC International, the international unit of China’s largest state-run bank. In a statement published by China’s securities regulator in September 2022, Cong was summoned for a talk over allegations of multiple cases of misconduct.

While no reports have emerged saying Bao himself could face criminal charges, his disappearance for so long could reflect the seriousness and far-reaching investigation surrounding Cong. And if and when he finally reappears, it’s far from clear whether he can just go back to his previous life.

China Renaissance called the post-Bao period a ‘new era’ in its latest reports. The company is much smaller with 521 employees, down by more than 200 from the end of 2022.

The company said it is determined to seek growth despite challenges. Seeking to instill investor confidence, it announced Sunday that its four executive directors will not sell any of their shares in the company for the next six months. But only time will tell if China Renaissance will be able bounce back from the loss of Bao, combined with the difficult fundraising environment in China’s increasingly somber realm of tech startups.

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