HONG KONG, Feb 20 (Reuters) – The disappearance of a star Chinese dealmaker has left his bank struggling to reassure customers and staff, people familiar with the matter said on Monday, and heightened concerns about the “key man risk” for investors.
Shares of China Renaissance Holdings (1911.HK) fell 5% on Monday, after hitting a record low in the previous session after the investment bank said it could not contact its founder, chairman and CEO Bao Fan.
The stock ended the day up 0.1% as the Hong Kong market rose 0.8%.
While the reasons for Bao’s disappearance are unclear, his case follows a series of incidents in which high-level executives in China disappeared with little explanation during a massive anti-corruption campaign. led by President Xi Jinping.
Some of them reappeared as suddenly as they disappeared.
China Renaissance said in a stock filing on Thursday that it had no information indicating that Bao’s “unavailability” was related to its business and that its operations were continuing as normal.
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China Renaissance co-founder Kevin Xie and his investment banking manager Wang Lixing, who run the company in Bao’s absence, told staff not to believe or spread rumours, according to two sources and copies of their messages to staff seen by Reuters.
“At such a critical time, everyone should trust the company. Don’t worry and stumble. It’s normal to encounter short-term difficulties,” Wang said in his post on the company’s Wechat group on Friday.
According to two sources and some media, authorities took Bao away earlier this month to help investigate a former colleague, Cong Lin, the company’s former president.
All sources, who have knowledge of the case, declined to be identified due to its sensitivity.
A spokesperson for Beijing-based China Renaissance declined to comment on specific details and referred Reuters to its exchange filing Thursday.
Xie and Wang did not immediately respond to requests for comment from Reuters on Monday.
Beijing’s public security bureau also did not respond to request for comment. Asked at a daily press conference on Friday whether the banker had been detained, Foreign Ministry spokesman Wang Wenbin said he was unaware of the situation.
The Hong Kong-listed stock, which rose as high as 3.5% early Monday, gave up all those gains and fell to HK$6.82. It hit an all-time low of HK$5 on Friday, but then recovered ground to close at HK$7.18, down 28%.
“KEY MAN RISK”
Bao, also a majority shareholder of China Renaissance, established the company in 2005 as a two-person team, seeking to connect capital-hungry startups with venture capitalists and private equity investors.
The business later expanded into services such as underwriting, sales and trading.
Known for being well-connected in the corporate world, Bao has been involved in technology mergers, including bringing together ride-hailing companies Didi and Kuaidi, food delivery giants Meituan (3690.HK) and Dianping, and Ctrip (9961.HK) and Qunar travel platforms.
“What happened to China Renaissance highlighted the key man risk with some Chinese companies,” said Li Nan, a finance professor at Shanghai Jiaotong University.
“A group of Chinese financial institutions has grown rapidly over the past few years thanks to the efforts of one or two supervisors, while that makes these companies particularly vulnerable to any negative headlines that show supervisors are struggling.”
Key person risk generally refers to the threat to a business of over-reliance on a limited number of employees for decision-making.
While it’s not uncommon in China for authorities to deport corporate executives for a variety of reasons, Bao’s disappearance comes amid more than two years of sweeping regulatory crackdowns on tech companies.
“This should once again remind foreign investors of the relative level of regulatory and governance risk associated with Chinese equities,” said Wium Malan, an analyst at Propitious Research, which publishes on the Smartkarma platform.
Reporting by Julie Zhu, Xie Yu, Scott Murdoch, Donny Kwok and Selena Li; Written by Sumeet Chatterjee; Editing by Muralikumar Anantharaman, Robert Birsel and Barbara Lewis
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