Storied team under murky ownership
WHEN Chinese b u s i n e s s m a n Li Yonghong bought AC Milan, the world-famous Italian football club, virtually nobody in Italy had heard of him.
Virtually nobody in China had, either.
Li had never been named to one of China’s lists of the country’s richest people. The mining empire he described to Italian football officials was hardly known even in mining circles.
Nevertheless, Li seemed to have what mattered most: money. He bought the club in April for $860 million from Silvio Berlusconi, the former Italian prime minister, to clinch China’s biggest-ever football deal.
Today, Li’s acquisition of AC Milan appears to be emblematic of a string of troubled Chinese deals.
The football club, bleeding money after a spending spree on star players, is seeking new investors or a refinancing of the high-interest loan that Li took to buy the club. That loan comes due in a year.
Chinese corporate records show that – on paper, at least – someone else owns his mining empire. That company’s offices were empty on a recent visit, and a sign on the door from the landlord cited unpaid rent. A spokesman for AC Milan said Li’s control of the mining business had been verified by lawyers and banks involved in the transaction. Chinese records also show a series of business disputes and run-ins between Li and Chinese regulators.
China’s emergence as a world economic power came with a ready checkbook for major brand names. Chinese owners now control the Waldorf Astoria hotel in New York, AMC theaters, the Hollywood production company Legendary Entertainment and AC Milan.
Then Chinese officials began to worry that the spending was simply part of an exodus of money from China so vast that it once threatened to destabilise the country’s economy, the world’s second largest. This summer, the government ordered its banks to scrutinise lending to some of the country’s biggest deal-makers.
Outside China, some of the deals led regulators to ask questions about the tycoons behind them. Some wealthy people in China list their holdings under the names of relatives or associates to avoid scrutiny, a practice that has attracted criticism inside and outside the country.
In the case of Li, the mines he told AC Milan he controlled have been owned by four different people since last year, according to Chinese corporate records. The business changed hands twice for no money.
Li declined an interview request through AC Milan. The club spokesman defended Li on his business disputes, saying that sometimes he was a victim and that sometimes he was not aware of complicated rules. The spokesman also said the club was evaluating refinancing proposals and was confident it could cover the loan.
Chinese spending on football totalled $1.8 billion over the past five years, according to Dealogic, a data provider, but Chinese officials are putting a stop to the spree.
“There’s a lot of ways to invest in soccer and the sports industry for much less money,” said Mark Dreyer, who tracks Chinese football investments on his website, China Sports Insider. “People were basically using the government’s previous push for sports as a way to diversify into different industries and get their money out of China.”
Li had plenty of reasons to buy AC Milan. President Xi Jinping had professed his love for football and wanted China to be a superpower in the sport by 2050. The Chinese government had laid out a plan for increasing sports investment.
An acquisition of AC Milan would be a marquee deal. A decade ago, the club was home to some of football’s biggest talents, including Ricardo Izecson dos Santos Leite, who is known as Kaká, and Andrea Pirlo. It was a seven-time European champion.
But it has not won an Italian championship for six years or a European title for 10. Fans welcomed Li’s arrival as a potential catalyst. This summer, AC Milan began to spend on players in a way that seemed to signal a desire to compete again.
Still, Li and Berlusconi struck the deal at a difficult time. Beijing, spooked by the unprecedented capital outflows, had imposed restrictions on overseas investment at the end of last year.
Li set up companies in the British Virgin Islands and Luxembourg that would put the club’s legal ownership outside China, according to Marco Fassone, AC Milan’s CEO. Li also borrowed about $354 million from the hedge fund firm Elliott Management, a loan he must pay back by October 2018. A spokeswoman for Elliott declined to comment.
AC Milan remains debt laden and unprofitable, and could have trouble repaying what it owes on its own. It spent about $274 million to sign 11 players this summer, according to the club spokesman, making it among the biggest spenders in European football.
It is unclear how much Li’s wealth might help the club address its troubles.
He was initially unknown to the deal-makers trying to sell the club, the people involved in the transaction said. He was originally part of a group that included Sonny Wu, a wellknown investor who is chairman of the private equity firm GSR Capital, these people said. But Wu pulled out of the deal.
In an email, Wu said he had not talked to bankers about Li or his consortium. Rothschild & Co, the investment bank that advised Li, declined to comment.
Li told AC Milan that his holdings included phosphate mining operations in the city of Fuquan in Guizhou province.
But Chinese corporate filings show that the mines are owned by another party: Guangdong Lion Asset Management, an investment company. And Guangdong Lion has had a complicated ownership record over the past two years, involving a number of people with similar family names. (One court proceeding suggests Li has a relationship with Guangdong Lion, although it is not clear what kind.)
Guangdong Lion’s listed headquarters are in a fancy skyscraper in Guangzhou. In August, the offices were closed, with an eviction notice on the door. Inside, desks and chairs were in disarray, computers were missing hard drives, and maggots festered in a trash can.
The phone number listed for Guangdong Lion connects to a woman who said she helped companies register with Chinese regulators.
Li Yonghong has an extensive business history, but Chinese records show it includes disputes with regulators and others.
In 2013, China’s securities watchdog fined Li $90,250 for failing to report the sale of $51.1 million in shares of a real estate company. AC Milan said Li had simply been unfamiliar with listing rules.
In 2011, that same real estate company said in a stock filing that Li was the chairman of Grand Dragon International Holding Co, a Chinese aviation company. Grand Dragon said in June that he had no present or past association with the company. The AC Milan spokesman said he had no knowledge of this.
In 2004, Li’s family business, the Guangdong Green River Co, teamed up with two other companies to bilk more than 5,000 investors out of as much as $68.3 million, according to the Shanghai Securities News, the official newspaper of China’s financial watchdogs. They had sold contracts for lychee and longan orchards and promised investors hefty returns, according to the report.
Li’s father and brother were sentenced to jail. Li was investigated but not accused of wrongdoing, the report said.
AC Milan said the episode had nothing to do with Li, adding that “he was not aware of the situation until the investigation.”
Amid Chinese concerns about deals abroad, China’s purchases of football teams with prestige names is likely to slow considerably for some time to come.
“If outbound investment should have the purpose of ‘strengthening the nation’, even within the broadest of definitions,” Peter Fuhrman, chairman of the investment bank China First Capital, said in an email, “buying a football team in the UK or Italy would hardly seem to qualify.”