Chapter 22: Feichi Auto Investment (Part 4)

Chapter 22: Feichi Auto Investment Case (IV)

After getting back from the AI Developer Conference, Jing Hong's attention was once again pulled toward Xindong Film and Television.

He and Zhao Hanqing took another crack at figuring out Qinghui's real intentions, but they were still completely in the dark.

Zhou Chang's aggressive move into the Xindong Film and Television acquisition had Jing Hong feeling the heat.

He couldn't shake the feeling that something was off.

Maybe it was exactly because of that mounting pressure that, over the next few days, Jing Hong found himself relieving himself a lot before bed.

Honestly, Jing Hong never saw himself as someone who gave in to his impulses—he was way too busy to waste even an hour.

But plenty of studies show that people tend to let their bodies do what they want when stress is high. Stress is an aphrodisiac. He needed a release, needed to feel out of his mind, needed to completely forget the crap weighing on him.

So, weirdly enough, on a few quiet nights in a row, whenever Zhou Chang popped into his head, Jing Hong's right hand would drift down south on its own.

In his head, flashes of Zhou Chang's face and faceless, tangled bodies kept switching back and forth—and the more they flipped, the faster and harder he went. He'd lie in bed, eyes shut, gasping, until he hit his peak, then suddenly crash, ending up completely limp and unable to move for a long time.

It freaked him out that he couldn't control himself, because he'd always been so disciplined.

...

With Qinghui suddenly jumping in and nobody able to figure out what they were really after, the Xindong acquisition ground to a halt—everyone just froze.

But Fanhai only held off for a week before deciding to keep going after Xindong, and they started buying up shares again.

And that's when Qinghui made their move.

The other shoe finally dropped.

Qinghui Group kept buying up Xindong shares—this time just 3%, bumping their stake from 5% to 8%—and then signed a "Concert Party Agreement" with Orient Insurance.

So in the three-way fight over Xindong between Fanhai, Orient, and Qinghui, Orient and Qinghui teamed up, with Orient calling the shots. At that point, Orient Insurance and its concert parties were sitting on over 30% combined, which triggered a mandatory general offer for Xindong.

Jing Hong knew Fanhai had been on the back foot ever since Qinghui showed up.

Fanhai had 22% at the time, while Orient Insurance and Qinghui Group together had over 27%. Fanhai was still 8% shy of the 30% mandatory-offer line, but the Orient-Qinghui alliance was only 3% away. The CSRC requires a public announcement for every 5% stake increase, so the Orient-Qinghui alliance could just sit back, watch what Fanhai did, and strike again when the timing was right.

With Orient and Qinghui teaming up, and since Xindong wasn't a must-have, Jing Hong cut his losses and pulled out.

"And after all that, we're still completely in the dark..." Zhao Hanqing said. "What's clear is that Qinghui was just doing Orient Insurance a solid here—there's no way Qinghui actually wants to get into the film business."

Jing Hong fiddled with a fountain pen, sounding bored: "Mm."

Obviously, Qinghui was just Orient Insurance's sidekick this time, doing all the work so Orient could look good. Otherwise, why would Qinghui have teamed up with Orient and let them be the ones to launch the offer?

After a beat, Zhao Hanqing added, "A few days ago, Qinghui and Orient Insurance must have been hashing out a deal—or more like, making a trade. Qinghui agreed to team up with Orient Insurance, but... who knows what they got out of it."

Jing Hong kept fiddling with the pen: "Mm."

He had no idea either.

Actually, he figured Qinghui would hand that 8% stake in Xindong over to Orient once the six-month lock-up ended, step off the board, and never look at Xindong again.

Under the Securities Law, any major shareholder with over 5% can't sell within six months of buying—that's the lock-up rule.

Zhao Hanqing sighed again: "Ugh, Orient Insurance was already running low on cash, and then Qinghui bailed them out! Now Orient has more time to scrape together the money. And with their size, this acquisition is nothing. Ugh... I seriously can't figure out what Orient could've offered Qinghui in return!"

Jing Hong said nothing.

That question—he still hadn't cracked it.

What kind of deal were Qinghui Group and Orient Insurance actually cutting?

What the hell was Zhou Chang up to?

...

Luckily, Qinghui Group didn't leave Zhao Hanqing and Jing Hong guessing for long.

Before long, Jing Hong came across a news story:

China's biggest private bank, Xingmin Bank, had transferred 750 million yuan worth of debt-for-equity shares in Tiantong Securities to Qinghui Group—that was 9.9% of Tiantong's total shares.

"...!!!" It suddenly all clicked for Jing Hong.

So this was what Zhou Chang was after!!!

Jing Hong had always known Orient Insurance was one of Xingmin Bank's big shareholders.

Jing Hong had gone through the list of companies Orient Insurance had invested in before, and Xingmin Bank was on it. Orient's stake in Xingmin was nothing to write home about—just over 5%, and Xingmin wasn't even a blip in Orient's portfolio.

Jing Hong had also dug into Xingmin Bank's connections back then and hadn't found anything worth noting.

But it turned out that two years earlier, Xingmin Bank had gotten its hands on those debt-for-equity shares in Tiantong Securities!

In 2015, the A-share market crashed, and a thousand stocks hit limit-down in a single day—it became the stuff of legend. The Shanghai Composite Index nosedived from over 5,000 points to around 2,700—basically cut in half—and the slide from 5,000 to 3,000 took just two months.

It all happened fast. A major Tiantong shareholder had multiple products blow up on them.

That company was reckless as hell—they ditched any sensible hedging, went all-in on stock index futures, and piled into CSI 300 and other futures like crazy. And wouldn't you know it, the month they were forced to liquidate turned out to be the worst month for the A-share market. But that's what you get for speculating—the delivery dates were right there in the contracts, and when the time came, they had to sell, even if it meant bleeding out.

After losing their shirt in 2015 and hitting a full-blown financial crisis, they couldn't pay back what they owed Xingmin Bank. So to save themselves, in 2016, with their backs against the wall, they handed over their 9.9% stake in Tiantong Securities to Xingmin Bank to cover the debt.

But the Chinese government practices separate regulation of the banking and securities industries—currently, Chinese commercial banks are prohibited from engaging in licensed securities businesses such as IPOs, and commercial banks' investment banking departments mainly handle financial advisory, M&A lending, and similar work, even though developed countries in Europe and America all practice universal banking. Chinese law therefore stipulates that banks may not hold debt-for-equity shares in securities companies for more than two years.

Now, the two-year period was about to expire, and Xingmin Bank had to dispose of these Tiantong Securities shares.

Apparently, Xingmin Bank had been very low-key about it—no major media outlet had ever reported on such a debt-for-equity stake, at least Jing Hong had never heard of it before. Presumably, Xingmin Bank had only quietly posted a notice online at the time. And when Jing Hong had investigated earlier, that two-year-old notice had, of course, already disappeared.

Jing Hong speculated that Xingmin Bank probably wanted to hold onto these shares tightly, refusing to sell within the two-year period, trying to test the official bottom line—to become a securities firm, obtain a license, and promote universal banking in China, perhaps believing that "universal banking" was the trend of the times. So they kept silent. However, it was clear that Xingmin Bank had greatly underestimated the Chinese government's resolute stance on "separate operation." Recently, it realized it still had to dispose of these shares within the two-year period as required.

What happened next?

Generally speaking, debt-for-equity shares have two fates: negotiated transfer or public auction. Regulators typically require banks to use the latter method, though there's a catch-all provision in the law called "except for circumstances recognized by the CSRC."

Jing Hong could already sketch out the trajectory of this matter.

Qinghui Group first helped Orient Insurance acquire "Xindong Film and Television." Afterward, Orient Insurance, in its capacity as a major shareholder of Xingmin Bank, suggested that Xingmin Bank transfer the Tiantong Securities debt-for-equity shares—which it couldn't hold onto anyway—to Qinghui, and communicated and negotiated with the CSRC. Although Orient Insurance only held 5%, who the Tiantong shares were specifically transferred to was indeed of little consequence to Xingmin, since they couldn't hold onto them anyway, and no other shareholders would oppose Orient Insurance.

So, what then?

Clearly, the CSRC agreed.

What the CSRC actually cared about was simply that Xingmin Bank obediently disposed of the shares. With the two-year deadline approaching, holding an auction would be risky—if the auction results weren't ideal, say no one bought them, and Xingmin Bank ended up holding the Tiantong Securities shares beyond two years, that would be a problem.

At this point, the 9.9% stake in Tiantong Securities belonged to Qinghui Group.

Tiantong Securities was the lead investor in Feichi Auto's Series B financing (Chapter 19), and was also Feichi Auto's largest shareholder after Fanhai.

Feichi Auto was a success story for Fanhai Investment—it had just rolled out China's first mass-produced batch of new energy vehicles, with zero competition anywhere in China. In the new energy vehicle race, Fanhai's bet paid off while Qinghui's flopped—the Quanjing Auto that Qinghui had backed had been struggling badly for years.

Qinghui had always wanted a piece of the Feichi Auto pie, a way to get their foot in the door, but Fanhai Group, as Feichi's major shareholder, had always refused. Qinghui Group wanted to invest but couldn't get in, and the head of their strategic investment division had been climbing the walls.

And now? They'd pulled it off.

Qinghui helped Orient Insurance buy Xindong Pictures. Then, via a deal with Orient Insurance, they took over Xingmin Bank's 9.9% debt-for-equity stake in Tiantong Securities, making them a shareholder in Tiantong Securities and, by extension, a shareholder in Feichi Auto, which Tiantong had backed.

This indirect investment, though not as good as Fanhai's direct stake in Feichi Auto, at least let them get a slice of the pie.

In theory, an indirect investment can't meddle in how the target company runs, but in reality, as a big shareholder of Tiantong Securities—basically the big shareholder's big shareholder in Feichi—they'd definitely have a voice and a way in.

Jing Hong mulled it over and figured Zhou Chang's big power play wasn't just about Feichi Auto.

First off, Tiantong Securities wasn't huge, but they had a sharp eye for investments. Besides Feichi Auto, they'd backed several other winners, all in adjacent industries.

Second, Tiantong's wealth management platform was top-tier among brokerages, and it could also trade HK and US stocks. Once they were tightly integrated, Qinghui's payment tool would get way better wealth management and asset allocation chops, pulling in more deposits—since Tiantong was a legit securities firm.

Third...

Jing Hong figured it was a good thing to finally know what Zhou Chang was really after.

No more looking over his shoulder.

"That's a whole lot of hoop-jumping, Zhou Chang," Jing Hong said, rapping the table and getting to his feet.

He recalled that his cousin, after meeting Zhou Chang, had gone on about his "magnetic presence of a man in charge." Jing Hong had brushed it off—people said the same thing about him and plenty of others. When you've got a parade of people kissing up to you, that kind of aura just shows up.

But Jing Hong suddenly saw that Zhou Chang also had that game-changer vibe—whether in the Kunpeng-Huawei merger or this Feichi Auto deal, he'd shown it, and yeah, it was genuinely magnetic.

He breaks the game, then takes control, turning the original power player into a sidekick.

People in power are a dime a dozen, but someone who can flip the board? That's one in ten thousand.

Still, Jing Hong mused, that's the kind of guy worth treating as a real rival.

Up on the 50th floor of Fanhai HQ, Jing Hong stood at the glass wall, hands in his pockets, taking in Beijing's glittering, sprawling night skyline. He let out a sigh and thought, "So that Zhou Chang really did muscle his way in."

Author's note:

"So that Zhou Chang really did muscle his way in."

Panda Mom: Jing Hong? Mom's good boy, what do you mean by that?

Jing Hong: ??? Of course I mean the investment in Feichi Auto, what else could I possibly mean?

Zhou Chang: "He's so sexy."

Jing Hong: "He's so charming."

This scene should be easier to understand? Jing Hong wouldn't let Zhou Chang invest in Feichi Auto, but Zhou Chang insisted on investing. When he couldn't invest directly, he invested indirectly, becoming the major shareholder's major shareholder of Feichi Auto...

[Notes]:

① Acting in concert: literally, a shareholder following another shareholder's lead when voting.

As for the separate management system, the policy has actually been gradually loosening.