‘Key man risk’ is still rife in Chinese companies, as shown by the US$4.2 billion wipeout in value of Future Land after founder’s arrest in Shanghai
- Latest scandal shows how investors end up paying a heavy price for the mistakes committed by company executives
- About 13 per cent of listed Chinese businesses, or close to 400 companies, have a shareholder who owns a stake of 50 per cent or more, according to data compiled by Bloomberg
The latest scandal from the mainland, this time involving the billionaire chairman of Chinese developer Future Land Development Holdings, has once again brought into focus “key man risk”.
Investors are reeling from the shock arrest of Wang Zhenhua, one of China’s richest men and controlling stakeholder of Hong Kong-listed Future Land, for allegedly molesting a nine-year-old girl. It wiped out more than HK$33 billion (US$4.2 billion) from the company’s market cap since the arrest was confirmed by Shanghai police on Wednesday.
The development has sent also the company’s bonds plunging, and prompted Moody’s, S&P Global Ratings and Fitch to place it on negative credit watch on Friday to reflect the potential damage to its reputation.
The scandal is reminiscent of a slew of incidents where the downfall of Chinese executives synonymous with their companies has badly hurt the company.
