With founder and CEO of China Renaissance Bao Fan “assisting authorities with investigations,” The future of China Renaissance remains in the balance.
Photo from CFP
By LI Jingya
BAO Fan, founder and CEO of China Renaissance, is “assisting authorities with investigations,” the investment bank said in a stock exchange filing Sunday night. After being out of sight for almost a month, the whereabouts of the China’s tech industry rainmaker remain unknown.
After moving to Pacific Century Place in Beijing in early 2017, a reporter asked whether Bao was removing his personal influence (de-Baofanization) from the organization.
“De-Baofanization was nothing more than shrinking my influence circle and empowering our partners and their influence circle. I hope China Renaissance continues to carry on after I retire one day,” replied Bao.
Things really blew up for China Renaissance in 2014 when the corporation ran the book for the JD.com IPO on Nasdaq. but in 2015, Bao said: “China Renaissance has a past because of me, but it has no future with only me. Take a look at Goldman Sachs. It’s a great company even without Mr. Goldman, Mr. Sachs, or their descendants. And that’s my vision for China Renaissance.”
Now, it seems the future has come a bit earlier than Bao had wished, and judging from it’s the crashed share price, the company’s fate may still be closely bound with its founding father.
On February 16, business media outlet Caixin reported the billionaire founder was missing. His disappearance was probably related to the investigation of CONG Lin, chairman of CR Securities (formerly Huajing Securities), a subsidiary of China Renaissance. Cong has been “assisting the authorities with investigations” since September last year. Cong worked at the ICBC for a long time before joining CR Securities.
China Renaissance’s shares halved in value on the news to hit their all-time low. The reaction indicates that this investment bank is still inextricably connected with its founder and de-Baofanization wasn’t successful at all.
In 2016, China Renaissance’s payroll expanded to 500 from 2014’s 100. Bao started to be concerned with “big company disease” and was stressed by the managerial pressure. Bao switched his style and reduced media exposure. He even kept away from his beloved car racing and boxing.
Since then, China Renaissance hadn’t closed a notable deal. From 2015 to 2017. Its investments centered around medical care and corporate services. In 2017, Bao split China Renaissance into an industry unit (the asset end) and a product unit (the fund end). Together with the existing M&A team and the CR Securities China A-share team, China Renaissance became more specialized.
Building on this, China Renaissance went public on HKSE in 2018 and extended its business to include asset management in 2019. Since then, Bao has shifted away from the management and banking to focus on capital investment.
China Renaissance’s 2021 financial statements showed that investment banking as the largest source of revenue and investment management the primary source of profits, Meanwhile, CR Securities was struggling.
Last May, China Renaissance raised of 3 billion yuan for its fourth yuan-denominated fund, an eye-catching achievement as funding of this scale in 2022 was obviously backed by State capital. Bao was glad to see that the company had expanded its investor base to cover industrial capital, state-owned capital, and local government capital while retaining its existing investors.
The transition from financial advisory to investment is reasonable because the latter is more profitable, while management fees of the financial advisory business are fixed and largely based on AUM.
Currently, China Renaissance’s four major business segments are investment management, investment banking, asset management, and CR Securities spanning primary and secondary markets. As of 2022 June, its assets totaled more than 14.4 billion yuan.
Per the 2022 interim report, it realized a half-year revenue of 512 million yuan, down by more than 42 percent, with a net loss of 154 million yuan attributable to shareholders, down by 110 percent. As a silver lining, its investment management business has been stably contributing more than 400 million yuan’s annual revenue since 2019.
Although newcomers in niche segments will continue to compete with China Renaissance, the company is very strong in medical care and technology.
When Bao vanished, China Renaissance appointed two executive directors, XIE Yi Jing (Kevin Xie) and WANG Lixing, to supervise daily operations.
Co-founder Xie Yi Jing has been with the company for 18 years and is managing director and head of healthcare, the largest business.
As one of the few millennial proteges of Bao, Wang Lixing joined China Renaissance in 2007 after graduation and has been overseeing the M&A business since 2012. His M&A team had an outstanding 2015 when they completed 13 mergers and acquisitions, including Didi Kuaidi (ride-hailing), Meituan Dianping (food delivery), 58 Tongcheng and Ganji (advertising), and Trip.com and Qunar (online travel agents).
The tumble of Renaissance stock shows that China Renaissance is still very much a one-man business awith high corporate governance risk.
In a meeting with Snowball Finance after Cong Lin joined, Bao said he had been delegating powers to other executives.
“Cong Lin and XIANG Wei have been in charge of the investment banking business for at least 3 years,” said Bao. “We are aware of the key-person risk and have been acting to avoid it.”
De-Baofanization means less personal influence and a more orthodox governance structure, which is the key to any lasting investment bank. But that doesn’t mean Bao is completely hands-off. He could still hold sway over the company from behind the curtain. No one can fill Bao’s shoes, but given time, Wang Lixing may be the right person, just as Daniel Zhang Yong succeeded Jack Ma of Alibaba.
The real de-Baofanizaiton of China Renaissance has only just begun.
