TYCOON’S US$5B M&A PUSH STALLS

ZZ Capital’s dealmakers jumping ship as China clampdown on capital outflows, reverse mergers takes its toll

LIKE many Chinese tycoons in the heady days of early 2016, Xie Zhikun had big plans to parlay his homegrown fortune into an overseas empire.

He poached top dealmakers from Qatar’s sovereign wealth fund, Bank of America Corp and KKR & Co.

He rented a sprawling office in a prestigious Hong Kong skyscraper, just a few floors down from Goldman Sachs Group Inc. And he vowed to fund nearly US$5 billion (RM19.46 billion) of global takeovers over three years.

Xie’s tally of completed deals: zero.

The shadow-banking mogul’s ambitions, like those of many of his peers, have been squashed by the iron fist of the Chinese state.

Stymied by the nation’s clampdown on capital outflows and reverse mergers, Xie was now preparing to dramatically scale back operations at ZZ Capital International Ltd, the Hong Konglisted private equity firm that served as his main vehicle for overseas deals, said sources.

A number of senior executives were negotiating severance packages, and a core of less than 10 people would likely remain at the firm’s headquarters after the Chinese New Year holiday, said the people.

The retreat is the latest sign that China’s business elite see little hope of a reversal in President Xi Jinping’s crackdown on outbound dealmaking, which has hemmed in other high-flying tycoons including HNA Group Co’s Chen Feng and Dalian Wanda Group Co’s Wang Jianlin.

It also adds to a string of recent setbacks for Xie. The businessman has been mired in a dispute related to another international private-equity fund, while the Chinese trust company that generated much of his fortune delayed customer payments on two of its products earlier last month.

ZZ Capital International swung to a net loss in the six months ended September after an 89 per cent drop in revenue. The firm had 64 employees at the end of the period.

“Steps have been taken to make a number of redundancies in the Hong Kong office, but these will have no impact on daily operations,” said a representative for ZZ Capital International in an emailed response to Bloomberg queries last Tuesday.

“Other group operations and teams in the United States and United Kingdom remain unchanged.”

There’s no evidence that Xie’s dealmaking has been singled out by authorities or that his businesses in China are facing financial stress.

The situation was fluid, and details of ZZ Capital International’s future strategy could change, according to the people.

Xie is married to a famous Chinese pop singer, and his older brother used to help run a US$650 billion Chinese government fund that controls the nation’s biggest banks.

But Xie’s business dealings have remained mostly out of the public eye.

The tycoon is most closely associated with Zhongrong International Trust Co, China’s thirdlargest trust company. His holding company owned about 33 per cent of Zhongrong, according to the trust firm’s latest annual report.

Sales of Chinese trust products — which are marketed to wealthy investors — have boomed in recent years amid the rapid expansion of China’s US$15 trillion shadow banking industry.

In some cases, the cash raised from such products has been used to help fund acquisitions.

This year kicked off with renewed scrutiny of the industry as policymakers crack down on excessive leverage in the financial system.

Zhongrong delayed payments last month to investors on two products tied to local government borrowings, said sources. The funds were later repaid, according to a statement from the borrower.