In May 2021, a group of Chinese banks agreed to lend $300 million to investment bank China Renaissance with one condition: if Bao Fan, the company’s well-known founder, ceased to be its largest shareholder or was no longer chairman of the board of directors, they could demand early repayment.
Nearly two years later, lawyers could soon look into this clause. Bao’s disappearance last week, announced in a company filing, has put a strain on the country’s vast tech industry that the trader helped build.
The fate of Bao and his company, which for years has been at the heart of Chinese technology funding, is a crucial test of Beijing’s stance on the industry. A two-year government crackdown has already sidelined Alibaba chief Jack Ma, decimated the vast for-profit education sector and hit investment globally.
“The question is – is it going to expand?” said Desmond Shum, author of Red Roulette, a dissertation on work in Chinese finance. “For the industry, this is a very, very scary time.”
When China Renaissance listed in Hong Kong in 2018, it was the culmination of years of success in the rise of mainland China’s tech industry.
Bao, in his early 50s, began his career as an M&A banker at Morgan Stanley and Credit Suisse, then worked as a chief strategy officer at AsiaInfo Technologies, a company that provides software solutions to Asian businesses and listed on the Nasdaq stock market in 2000.
In 2005, he launched China Renaissance to capitalize on the fast-growing technology industry. His success stems in part from his personal relationships with many future Chinese tech billionaires, trained during his early years at Morgan Stanley and Credit Suisse.
Soon, the bank was offering mergers and acquisitions, IPO and capital management services to budding tech stars. He had clients including Tencent, Alibaba and Didi and boasted of advising around 980 deals worth $146 billion in June 2020.
China Renaissance has decided to focus on the technology and healthcare sectors instead of competing in the sectors with foreign groups such as Goldman Sachs or Chinese state-backed banks such as Citic Securities.
Yet its fortunes have changed following China’s regulatory crackdown on the tech sector. Revenue for the first half of last year fell more than 40% from a year earlier, pushing the group to a profit of Rmb 1.2 billion ($175 million) for the first half 2021 at a loss of Rmb 154 million.
For China Renaissance, Bao’s absence could be devastating. Shares of the bank closed down nearly 30% on Friday after news of his absence.
China Renaissance did not respond to request for comment.
Bao is the face of the bank and the main rainmaker who attracts customers and sets up complex deals that have shaped the fortunes of many multibillion-dollar Chinese CEOs and entrepreneurs.
“No one at China Renaissance works harder than him,” said a person close to the bank.
Major mergers in the country’s tech industry, such as between food delivery group Meituan and restaurant rating provider Dianping, as well as ride-sharing companies Didi and Kuaidi, would not have been possible without him, he said. said the person.
China Renaissance has become more closely tied to the country’s public sector in recent years, although it still makes the majority of its money from technology deals.
In 2017, China Renaissance formed a strategic partnership with ICBC International, a division of state-owned bank ICBC. ICBC International provided the bank with a $200 million line of credit backed by pledged China Renaissance shares, stipulating that the borrowed funds would be repaid soon after it listed in Hong Kong.
Cong Lin, a key figure in that deal, later joined China Renaissance in 2020 and was until recently its chairman and head of its securities unit.
His recruitment to lead the group’s securities business marked China Renaissance’s first major hire of a well-connected banker with strong ties to China’s state-owned banking system.
In September last year, an arm of China’s securities regulator asked Cong to come in for a “supervisory talk”. Three days later, Cong quietly left key positions in the group’s securities unit. He was detained by Chinese authorities at this time and no longer appears among the rulers listed on the China Renaissance website.
Some people close to Bao believe that his problems could be linked to Cong’s, his disappearance following his lieutenant’s run-in with the authorities. Others speculate that Chinese authorities may be looking for information related to his years of behind-the-scenes trading in the tech industry.
In its filing last week on Bao’s disappearance, China Renaissance sought to downplay the impact of his absence on the business, saying it was not aware of any reports that his “unavailability is or could be related to the activity and/or operations of the group”. which continues as normal.
For Shum, the situation was at a “crossroads,” and it was unclear if the government was sending a message to the tech industry or if the incident stemmed from “bureaucratic sensitivities” related to Cong.
“Anyone in the industry will stay away,” he said. “If I’m in the industry, I would leave the country.”
Additional reporting by Hudson Lockett in Hong Kong