What’s new: China’s embattled investment conglomerate Zhongzhi Enterprise Group said it is “severely insolvent” while disclosing a financial shortfall of up to 260 billion yuan ($36.5 billion).
In a letter to investors published on Wednesday, Zhongzhi stated that an audit of its balance sheet revealed that the company has debts ranging from about 420 billion yuan to 460 billion yuan ($59 billion - $64.6 billion), more than twice its assets of 200 billion yuan.
“Preliminary due diligence shows the group has endured a significant risk of sustainable business operation and the company doesn’t have sufficient assets to cover debt in the short term,” the company said in the letter.
The company’s liquidity has dried up and the recoverable amount from asset disposals is expected to be low, it said.
Background: Beijing-based Zhongzhi, one of China’s largest private wealth managers, has been in the spotlight since June after several of its wealth management and trust business affiliates failed to repay investors.
Founded by late businessman Xie Zhikun in 1995, the company has been mired in controversy over its aggressive expansion and significant risk exposure. Zhongzhi ventured into finance just after the millennium and shifted its business focus from industry to finance in 2008, gradually building itself into a sprawling financial conglomerate under the Zhongzhi umbrella with a wide-ranging portfolio. It has since obtained licenses to operate in the trust, insurance, leasing, and public and private fund businesses.
Zhongzhi raised enormous sums through its wealth management units and invested the money in a vast array of listed companies. Through its range of units, Zhongzhi manages nearly 1 trillion yuan of assets, including mutual funds and private equity funds.
The company’s financial condition has worsened since 2019 amid tightening regulations and a nationwide crackdown on reckless investments by financial conglomerates. The persistent property industry downturn also squeezed Zhongzhi’s liquidity as its trust arms are major backers of troubled developers.
Contact reporter Han Wei (weihan@caixin.com)
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