Divorces among China’s wealthy have been in the headlines this year, with at least 10 A-share listed company executives filing to end their marriages, resulting in significant amounts of shares changing hands during divorce settlements.
The latest related divorce was made public on Sept. 15, when Sichuan Guoguang Agrochemical Co., Ltd. announced that chairman Yan Yaqi and his wife Hu Lixia had completed divorce procedures after “friendly negotiations.” They also made relevant arrangements for dividing shares among themselves, along with other matters.
According to the announcement, Mr. Yan held about 40,898,340,000 shares of Guoguang Agrochemical, accounting for 9.4 percent of the company’s total shares, while Ms. Hu did not hold any shares. Under the divorce agreement, Mr. Yan agreed to transfer 20,449,170,000 of his shares to Ms. Hu, accounting for approximately 4.7 percent of the company’s total shares.
The closing price of Guoguang shares on Sept. 15 was 10.98 yuan per share. Based on this price, Ms. Hu received a break-up fee of approximately 225 million yuan (about $30.9 million).
There was also another “sky-high divorce” that was made public on Aug. 25, when Maxunitech announced that Fan Kaishu, a controlling shareholder, and Wu Jinhua had gone through divorce procedures and made arrangements for the division of shareholdings.
The divorce agreement stipulated that Mr. Fan planned to transfer 7,026,300 company shares to Ms. Hu, valued at approximately 132 million yuan (about $18 million) based on the closing price that day.
Meanwhile, the authorities have revised a law to curb the use of divorce by high-net-worth couples to circumvent restrictions on stock sales. China’s Securities Regulatory Commission (CSRC) on Aug. 25 required the implementation of new standards for divorces that involve the transfer of substantial stock holdings, making it difficult for the divorced spouse to reduce holdings and cash out.
Fake Divorces
Some of these couples used to be relationship role models. For example, Zhou Hongyi, the founder and chairman of Chinese cybersecurity giant 360 Security Technology Inc., consented to transfer 446 million shares, equivalent to approximately 6.3 percent of the company’s overall ownership, to his ex-wife, Hu Huan. The settlement totaled almost 9 billion yuan, or about $1.25 billion.Before this equity shift, Ms. Hu had no ownership stake in the company, nor was she engaged in its day-to-day operations or management.
Previously, Mr. Zhou had publicly expressed his deep gratitude to his former company, Founder Technology, as it was there that he discovered the “greatest happiness of his life”—meeting Ms. Hu. He has also recounted their love story in great detail in his autobiography.
Underlying Reasons
In a recent interview with The Epoch Times, Frank Tian Xie, Ph.D., a John M. Olin Palmetto Chair Professor in Business & Professor of Marketing at the University of South Carolina Aiken, said that he believes most of these divorces are intended to cash out stock holdings, as by doing so, the billionaire couples can avoid certain risks or audits.In his view, both Chinese society and the economy are in a deformed state due to the Chinese Communist Party’s heavy-handed intervention. For example, all listed companies must have a party branch, and the party boss must be allowed to sit on the board of directors even if he only holds a very small stake.
“China’s economic outlook is quite bleak, and the current social and economic uncertainties have aggravated Chinese people’s anxiety,” he said. “Nowadays many people want to leave China, and there are also many who want to preserve their capital by exiting the market. By resorting to fake divorces, they can divide their shares, making it easier to cash out.”
Moreover, whenever small shareholders witness the divorce of a major shareholder, be it a director, supervisor, or senior executive, they become apprehensive about potential underlying issues and fear that the party may launch an investigation into the company. Consequently, these shareholders promptly offload their shares.
In contrast, in the United States and other Western nations, there is no similar concern that a major shareholder’s divorce could lead to a downturn in the stock market, Mr. Xie said.
He predicted that the number of divorced tycoons will continue to grow and that no amount of restrictions will be of any use.
