Starting at 30% off, no buyers! Huaxin Bank's 2.77% equity auction failed to attract bidders, with multiple shareholders facing debt risks.

What are the hidden concerns behind the phenomenon of private bank equity being unsold at auction?

Interface News Reporter | Zeng Lingjun

Despite over 15,000 onlookers and starting prices set at 70% of the assessed value, a multimillion equity stake in Fujian Huacom Bank Co., Ltd. (hereinafter referred to as “Huacom Bank”) still fell victim to the fate of not being sold.

According to the JD Asset Trading Platform, as of 10 a.m. on March 17, after a day of auction, the equity held by Fujian Xintong Investment Group Co., Ltd. (hereinafter referred to as “Xintong Group”) in Huacom Bank ultimately went unsold due to no bidders. The starting price for this equity was 42.182 million yuan, with an original assessed value of 60.26 million yuan, and even at a 30% discount, it failed to attract a “buyer.”

“The equity of Huacom Bank that went unsold this time, as well as the majority of unsold equities from private banks previously, are all small proportion stakes, generally accounting for less than 5%, which cannot significantly impact bank operational decisions or board seats, and lack control premium. For investors, such equity can neither provide stable dividends nor achieve industrial synergy or capital operations, so naturally, no one is willing to take over,” said a banking analyst from a brokerage to Interface News. Moreover, regulatory requirements for bank shareholders’ qualifications are quite high.

Xintong Group has deep ties with Huacom Bank. As Fujian Province’s first private bank, Huacom Bank was founded in January 2017, initiated by eight private enterprises from Fujian, including Yonghui Superstores Co., Ltd. and Sunshine Holdings Co., Ltd.

At that time, Xintong Group, as one of the initiators, held an 8.85% stake in Huacom Bank, making it the fourth-largest shareholder and securing a board seat. However, good times did not last long. With Xintong Group encountering its own financial difficulties, its bank equity began to frequently change hands.

The turning point occurred in 2023. According to Huacom Bank’s 2023 financial report, Xintong Group’s shareholdings experienced a steep decline, with the majority of its shares transferred to other shareholders, including Yonghui Superstores, Fujian Panpan Biotechnology, Sankeshu Paints, and Fujian Shengnong Foods. After this adjustment, Xintong Group’s shareholding ratio plummeted from 8.85% to 2.77%, dropping from the fourth-largest shareholder to the eighth.

The 66.5 million shares now listed for auction represent all the equity currently held by Xintong Group. This equity is currently pledged, and due to Xintong Group being listed as an executor, it is subject to judicial disposal by the Beijing Chaoyang District People’s Court. Although the first auction went unsold, according to judicial procedures, there will typically be a second auction at a discounted price.

In addition to Xintong Group, Huacom Bank has several other shareholders facing debt issues. According to the Tianyancha APP, the bank’s second-largest shareholder, Sunshine Holdings Co., Ltd., is a person subject to enforcement; the sixth-largest shareholder, Fujian Sansheng Real Estate Development Co., Ltd., is also a person subject to enforcement. Currently, all equity held by the second-largest shareholder Sunshine Holdings has been frozen, and the 7% equity held by Fujian Sansheng Real Estate in the bank has also been frozen.

In April 2023, Huacom Bank was issued a fine of 1 million yuan by the former Fujian Banking and Insurance Regulatory Commission for inadequate equity management and improper pre-loan investigations regarding working capital loans.

According to Huacom Bank’s 2024 annual report, the bank achieved operating income of 750 million yuan in that year, a year-on-year increase of 3.6%; net profit of 84 million yuan, a year-on-year increase of 13.2%; and total assets of approximately 36.75 billion yuan, ranking near the bottom among 19 private banks. In terms of asset quality, as of the end of 2024, the bank’s non-performing loan ratio was 1.21%, with a provision coverage ratio of 211.22%. While these figures are within a reasonable range, they still show a gap compared to outstanding private banks in the industry.

In fact, the phenomenon of private bank equity going unsold at auction has become the norm. In the past two years, several large private bank equity stakes in China have encountered unsold situations. For example, in December 2024, the 17.6% equity stake in Meizhou Keshang Bank held by the fourth-largest shareholder Guangdong Chaohua Technology went unsold after three auctions, with an assessed value of 418 million yuan and multiple discounted starting prices.

Moreover, a person from the strategic planning department of a city commercial bank analyzed to Interface News that in recent years, some small and medium-sized banks and private banks have faced deteriorating asset quality, shareholder violations of fund usage, and governance chaos, compounded by tightening risk prevention measures in the financial industry. Investors’ risk appetite for private bank equity has significantly decreased; even if the assets do not have obvious defects, they tend to hold cash and observe, unwilling to engage in illiquid, hard-to-exit assets like non-listed bank equities.