A billionaire businessman is accused of sexual assault, leaving the authorities scrambling to react. Accusations of a cover-up start making the rounds.
Am I talking about Jeffrey Epstein, the U.S. billionaire arrested this week for alleged sex with minors? No, I'm talking about one of China's richest men -- property magnate Wang Zhenhua, chairman of Hong Kong-listed Future Land Development (HK:1030).
Police in Shanghai issued a statement on July 3 that they had detained two people, a 57-year-old man surnamed Wang, and a 49-year-old woman called Zhou on child-molestation charges.
Zhou allegedly took a 9-year-old girl and a 12-year-old girl to a five-star hotel in Shanghai while they were on a trip to the city to visit Disneyland, according to a local news report cited by China Daily, the state-owned official newspaper.
The 9-year-old later reportedly called her mother, who was in Jiangsu Province neighboring Shanghai, and told her about an alleged assault that left her with injuries to her genitals. The mother then called the police. The news report said Wang paid Zhou 10,000 yuan ($1,453) in cash after allegedly abusing the girl.
China's Internet censors at first blocked discussion of and news reports on Wang's case. But officials have reversed course and intensified criticism of the incident.
China's top law-enforcement agency has issued a statement on social media denouncing Wang, even though it admits the case is still under investigation. It says Zhou allegedly delivered the girl "to the tiger's mouth."
What's going in China with Wang should remind us of the dangers that investing in Asian public companies can present. After all, it's common for companies to list on Asian stock exchanges but continue to operate like they're the founding tycoon's personal empire.
About 13% of China's listed companies have a shareholder who still owns 50% or more of the company, as is the case with Future Land Development. The company removed Wang from his position as chairman and executive director on July 3, noting he is "currently being held in criminal custody for personal reasons."
Wang, who Forbes magazine estimates is worth $4.4 billion, was chairman of Future Land and its affiliated China-listed developer Seazen Holdings (SH:601155), the latter of which also removed him from his post.
Future Land's $32 billion in 2018 sales shot it to No. 8 on the ranking of China's largest developers, its first time to make that list. Amid the recent allegations, the company announced its 2019 first-sale sales were up 28% year over year.
Despite that growth, Future Land's shares have cratered some 33% since Wang's arrest, while Seazen Holdings shares have fallen aboput 34%. The two companies combined have lost some 53.9 billion yuan ($7.8 billion) in market capitalization.
Wang founded Future Land in 1996 and still owns 71% of the company. Future Land in turn owns 67% of Seazen, which Wang founded in 1993 but has pledged half of his stake to get financing, according to Moody's. Seazen makes up "most of Future Land Development's operations," Moody's noted, so the allegations against Wang are "credit negative" for both companies.
Two investors in Shanghai-listed Seazen Holdings have lodged a complaint with mainland China's stock watchdog, according to China's official news service Xinhua, alleging that senior management may have alerted select investors about Wang's detention before making this knowledge public. They cite five large sales transactions in the stock prior to the public announcement.
Future Land disclosed that it was removing Wang to the Hong Kong Stock Exchange as "inside information." The company appointed Wang Zhenhua's 31-year-old son, Wang Xiaosong, in his place. The firm also said it acted the same day it received notice that the Shanghai Public Security Bureau had detained the elder Wang.
Seazen Holdings has apologized over the incident, although the police investigation is still continuing. "First, to all the victims who have been caught up in this storm, for the huge pain that the victim's family has suffered, we are upset and deeply apologize," the company said in its statement, translated by Reuters.
"Seazen will fully support and cooperate with the relevant departments to deal with the issue," the company added. It said on Tuesday that Wang Zhenhua had resigned as a director "due to personal reasons."
HSBC Global Research has downgraded Future Land's U.S. dollar bonds to "underweight" from "overweight," and says it's wary that institutional investors may exit the bonds due to corporate-governance concerns. Fitch placed the credit ratings of both companies on a "negative" ratings watch.