Chinese GP accused of misusing SF Express project fund

PE-backed SF Express announced a reverse merger last year with Maanshan Dingtai Rare & New Materials, a Shenzhen-listed shell company, at a valuation of RMB43.3 billion ($6.6 billion). Maanshan Dingtai subsequently a RMB8 billion private placement to support SF Express' business expansion, and Beijing Dabai was selected as one of the 10 participating investors.

Having won the right to purchase RMB200 million worth of shares, the GP launched seven project funds to raise capital from third-party investors, securing RMB392 million in total. Longstand invested about RMB75 million in one of these funds in August of last year, alongside with other 50 individual and institutional investors. SF Express completed the reverse merger in February of this year. The stock closed at RMB55.21 on its first day of trading, a 41% premium to the reverse merger price.

Longstand said it last received information about the project fund in May. In August, Beijing Dabai was ordered by the regulator to provide a fund performance report to its investors.

The report showed that 99.49% of the corpus was deployed across a variety of Shenzhen and Shanghai stocks before June, including shares carrying ST (special treatment) tags - which means the company has suffered losses for two consecutive years or more, or it is undergoing delisting procedure. As of July, the fund was valued at less than RMB1, according to the documents posted on Longstand's website.

A few days later, Beijng Dabai provided another document indicating that the seven project funds had invested RMB200 million in SF Express, acquiring 5.68 billion shares at RMB35.19 apiece in late July – five months after SF Express went public. SF Express hasn't traded below RMB40 since the reverse merger. Beijing Dabai did not disclose how it had used the remaining RMB192 million.

"We request Beijing Dabai Huicai to hold an investor meeting, and explain us the investments by the SF Express project fund in detail," Longstand said in a statement.

It is not the only Chinese GP to be accused of mismanaging a renminbi-denominated project fund. Last week, Shenzhen-listed Nationz Technologies claimed that it had invested RMB500 million in a technology and healthcare-focused fund managed by Shenzhen Qianhai Khan Fund Management. The company said the manager appeared to have absconded with the money, adding that it had reported the matter to the police.

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• Topics
• Greater China
• Fundraising
• Regulation
• Renminbi fund
• China
• Renminbi
• Logistics
• GPs
• LPs