Founder Group hit by scandal

Peking University firm under fire due to debt allegations, stock case

Peking University's Founder Group has written a letter to the central bank, media said Monday, asking for help to publicly refute reports that the group is suffering from a huge debt burden and that the central bank has ordered commercial banks to stop offering new loans to the group.

Media reports said Monday that the group now has debts of as much as 60 billion yuan ($9.64 billion) and needs to pay as much as 8 billion yuan each month to cover its debts and interest, citing a report from China Lianhe Credit Rating Co.

The company may face a capital crunch as banks are tightening loans to the company, media reports said.

Founder Group said in the letter that such "false reports" could affect its cooperation with financial institutions. The group also said that its operations are now well on track, news portal finance.qq.com said on Monday.

Following the report, Founder Group's major listed arms all dived on Monday. Shares in the group's China Hi-Tech Group Co dived by its daily limit of 10 percent. Shares in PKU HealthCare dropped 9.97 percent and that of Founder Securities dropped by 1.66 percent on Monday.

Such negative publicity could endanger Founder Group's relations with its suppliers or clients and increase the pressure on the company's operation if it is already facing debt issues, Wang Danqing, a partner at Beijing-based ACME Consultancy, told the Global Times Monday.

Founder Group said on its Sina Weibo account late Monday that it has made a report to the police about the false reports.

Founder Group claimed in the letter that the false information was deliberately spread by Beijing Zenith Holdings Co.

The real estate developer had been a business partner of Founder Group; however, the two companies then had a serious falling out in November. Beijing Zenith has made several public criticisms of Founder since then.

So far it is still not clear why the two parties turned against each other.

On November 3, Zenith said in a statement that PKU HealthCare's major shareholders were suspected of being involved in illegal affiliate transactions and false information disclosure. Following the news, shares in PKU HealthCare on the Shenzhen bourse dropped by the daily limit of 10 percent on the same day.

Zenith bought a 6.71 percent stake of PKU HealthCare in June 2013. But the purchase was actually made on behalf of Founder Group's other subsidiary PKU Resources in a closed-door deal, according to Zenith.

But Wu Lijun, a lawyer at Shanghai-based Orient Cambridge Law Firm, said that such information should be disclosed to the public in accordance with securities laws.

Due to irregularities in information disclosure, Zenith and PKU Resources were punished by being publicly denounced by the Shenzhen Stock Exchange as the two did not disclose the information about the stock purchase in 2013, PKU HealthCare said in a filing on December 15.

Wu told the Global Times Monday that several investors have been consulting with his firm on taking legal action to get compensation for losses incurred by Zenith and PKU Resources' irregularities, which caused the slump of PKU HealthCare shares on November 3.

The central bank did not reply to the Global Times' interview request on Monday. Founder Group and Zenith were also not available for comment.

Beijing Zenith also said in a post on its Sina Weibo account on December 8 that Founder Group's chairman Wei Xin, CEO Li You as well as several other top executives have been involved in illegal activities such as insider trading, forging identifications as well as giving bribes.

However, Founder Group said it has filed lawsuits against Zenith and several websites for slander and it will fully cooperate with the authorities' investigations, according to statements on the group's website.

Currently the China Securities Regulatory Commission is investigating the matter, according to a filing from PKU HealthCare on November 20.

Wu said that the matter is too complicated for any third parties to make comments at present.

Founder Group was established in 1986 by Peking University, with 70 percent of its shares held by Peking University and the rest by the Group's management, according to information posted on its website.