Almost all staff have left troubled online video service provider Baofeng Group Co. Ltd., which has been haunted by operational and financial challenges as it struggles to manage fallout from its involvement in a high-profile and ill-fated acquisition of British firm MP & Silva Holding SA.
The Shenzhen-listed company said in a Monday exchange filing (link in Chinese) that all its senior executives have resigned except for Feng Xin, its founder and chairman. Feng was detained by police earlier this year on bribery allegations. The company presently has just “over 10” employees, and owes some staff unpaid wages due to “tight funding conditions,” the filing says.
Baofeng may see trading of its shares suspended, and it now struggles for revenue with its main businesses at a standstill, the company said in a separate Monday filing (link in Chinese).
The Shenzhen Stock Exchange can suspend trading of Baofeng shares in the event that its audited 2019 annual report shows negative net assets at the end of the year or it does not submit an annual report within two months of the end-April 2020 deadline. At the end of September, Baofeng’s net assets were worth negative 633 million yuan ($90 million), a steep decline from net assets of 24 million yuan at the end of last year, the company’s unaudited third-quarter report (link in Chinese) shows. However, the company is unlikely to publish its 2019 annual report on time, as it now has neither a chief financial officer nor an auditing agency, it said.
The Beijing-based company’s web server hosting partner has stopped providing services for Baofeng after the company failed to pay its bills, leading to malfunctions of its website and mobile app. Baofeng has paid its office rent until the end of February 2020, but it might lose the office if it fails to pay rent after that, according to the filing.
Baofeng’s woes stem from its aborted acquisition of a British media company, a story that shone a light on lax risk controls in many Chinese corporations. Aiming to compete with then-rival media platform Letv Sports Culture Develop (Beijing) Co. Ltd. controlled by debt-ridden Chinese entrepreneur Jia Yueting, industry insiders say, Baofeng participated in acquisition of a 65% stake in MP & Silva for 5.2 billion yuan through a highly leveraged special purpose vehicle in 2016. MP & Silva held exclusive broadcast licenses for multiple overseas professional sports leagues at the time. However, MP & Silva went bankrupt two years later, drawing international media attention to Baofeng and throwing it into a contentious dispute with business partners over who should be left holding the bag.
The disastrous investment in MP & Silva was made through a consortium, in which Baofeng invested 200 million yuan and other partners, including China Merchants Bank Co. Ltd. and Everbright Capital Investment Co. Ltd., a subsidiary of Everbright Securities Co. Ltd., contributed the remaining funding. The deal took place at a time when Chinese companies were scrambling to snap up overseas businesses, many of which subsequently turned out to be duds.
In October 2018, MP & Silva was declared bankrupt by a British court. While Everbright Capital made only a minority investment of 60 million yuan in the deal, it ended up owing about 3.5 billion yuan to two senior-tranche partners in the consortium, according to the brokerage’s 2018 annual report.
Everbright Securities is also seeking compensation from Baofeng. Baofeng had promised to buy MP & Silva shares from the other investors in the consortium within 18 months of the takeover deal’s closure, but it never followed through with the pledge.
Baofeng’s stock price dipped 0.6% to 3.3 yuan at closing on Tuesday, down 74% from its year-to-date high of 12.7 yuan on March 8.
– This article originally appeared on Caixin Global.
