Gortune Investment Co., Ltd.

On the evening of June 30, China Baoan (000009, SZ) disclosed that during the 2020 Annual Shareholders’ Meeting held on that day, the Proposal on Amending the Articles of Association was approved. This means that the “golden parachute clause” previously set up by China Baoan to prevent “Barbarians” has officially been removed. For Gortune Investment Co., Ltd. (Gortune Investment), which has significantly increased its stake and become the largest shareholder of the company, this is undoubtedly good news. Some investors also commented on stock forums, hoping that this marks the beginning of China Baoan ending its situation without a controlling shareholder.

Successful revision of the Articles of Association

Due to the recent surge in stock prices, the shareholders’ meeting for China Baoan attracted significant attention and participation. According to the disclosure, a total of 3,026 shareholders (or their representatives) participated in the vote, representing 1.545 billion shares, accounting for 59.89% of the company’s total voting shares. Among them, 3,019 small and medium-sized investors participated, representing 847 million shares, or 32.83% of the total voting shares.

From the voting results, it was evident that the proposals, including the 2020 Annual Report, were all approved, but there were also some “objections”. Several proposals received more than 150 million shares in abstentions.

Among the proposals voted on, the Proposal on Amending the Articles of Association saw more intense debate. The voting results for the proposal were: 1.145 billion votes in favor, accounting for 74.15% of the valid votes cast by shareholders attending the meeting; 8.687 million votes against, accounting for 0.56%; and 391 million abstentions, accounting for 25.29%.

The approval of this proposal means that China Baoan’s “golden parachute clause” has been rendered ineffective.

Under the original articles of association, if China Baoan were to be acquired or taken over, and if it were necessary to terminate or remove the positions of board members, supervisors, the president, or other senior executives before their term expired, their consent would be required. In such a case, the company would have to pay an economic compensation amounting to more than ten times their annual salary and benefits. If these board members, supervisors, the president, or other senior executives had signed labor contracts with the company, the company would also need to provide additional economic compensation or severance pay in accordance with the Labor Contract Law. Additionally, when the board of directors is replaced, the nomination of board candidates must come from the previous board, and the number of directors to be replaced (including independent directors) cannot exceed half of the total number of the board. The nomination of supervisory candidates by shareholders must also come from the previous board of supervisors and be elected or replaced by the shareholders’ meeting.

These provisions were clearly set up to prevent “Barbarian” merger and acquisition. However, under the revised articles of association, all of these clauses have now been removed.

The strong intervention of Shaoguan Gaochuang

The Proposal on Amending the Articles of Association was temporarily put forward by Shaoguan Gaochuang Enterprise Management Co., Ltd. (hereinafter “Shaoguan Gaochuang”), the largest shareholder of China Baoan. The review outcome of the shareholders’ meeting is undoubtedly good news for Shaoguan Gaochuang, which has been significantly increasing its stake and strengthening its influence.

Shaoguan Gaochuang is a wholly-owned subsidiary of Gortune Investment, and its intervention in China Baoan has been very rapid.

In China Baoan’s 2020 Q3 report, there was no mention of Shaoguan Gaochuang. However, by the end of 2020, Shaoguan Gaochuang had already acquired 126 million shares, representing 4.90% of the company’s total shares, making it the fourth-largest shareholder. In early February this year, China Baoan announced that Shaoguan Gaochuang had increased its stake by 0.10%, bringing its holdings to 5%, surpassing Li Songqiang to become China Baoan’s third-largest shareholder.

Before Shaoguan Gaochuang’s intervention, the ownership structure of China Baoan was relatively stable. Shenzhen Fu’an Holdings Co., Ltd. (hereinafter “Fu’an Holdings”), Shenzhen Baoan District Investment Management Co., Ltd., and Li Songqiang consistently held the top three positions among the company’s shareholders. Since these shareholders had relatively low ownership stakes and were not acting in concert, the listed company had always stated that it had no controlling shareholder or actual controller.

Shaoguan Gaochuang’s intervention disrupted this peaceful situation. By March 2, Shaoguan Gaochuang’s shareholding had increased to 258 million shares, or 10%, making it China Baoan’s largest shareholder. Since then, Shaoguan Gaochuang’s shareholding increase has not stopped. By April 29, its shareholding had reached 343 million shares, or 13.30%, further widening the gap with Fu’an Holdings.

In the equity change report, Shaoguan Gaochuang stated twice that its increased stake in China Baoan was based on confidence in the listed company’s development and recognition of its long-term investment value. After becoming the largest shareholder, Shaoguan Gaochuang stated that the listed company would continue to operate independently, and it had signed a Commitment Letter on Maintaining the Independence of the Listed Company.

Although Shaoguan Gaochuang reveals a financial investment approach in words, its actions, such as actively dismantling the company’s anti-takeover clauses, imply that its intentions go beyond simple financial investment.

It is worth noting that at China Baoan’s 2020 annual shareholders’ meeting, Xu Biao was successfully elected as a company director. According to his resume, Xu Biao is currently the Vice President of Gortune Investment, a director at Gortune Capital Management (Shenzhen) Co., Ltd., and a supervisor at Gortune Alternative Asset Management (Zhuhai Hengqin) Co., Ltd. Xu Biao’s election also means that Gortune Investment now has a certain level of influence on China Baoan’s board of directors.