KEY POINTS:
Richina Pacific is a strong candidate to replace Trans Tasman Properties as the most frustrating mid-sized NZX-listed company in terms of governance and performance.
This assessment is based on the huge number of board changes and the inability of chief executive Richard Yan to take advantage of China's booming economy. The company's performance has been abysmal under Yan's stewardship yet his salary has risen each year.
The chief executive's total remuneration for the December 2006 year was US$866,000 ($1,226,000), compared with Richina Pacific's sharemarket value of only $68 million.
Telecom's former chief executive, Theresa Gattung, should have been paid nearly $160 million a year on a comparative sharemarket value basis and Fletcher Building's Jonathan Ling more than $100 million.
A large number of Richina Pacific's minority shareholders are extremely angry because the company has consistently failed to deliver on its promises and there seems to be no connection between Yan's remuneration and the company's performance.
This story began in May 1994 when Yan raised US$52.6 million from a number of wealthy Americans through Richina Capital. The main purpose of the fund, which had a management fee of 2.5 per cent a year, was to invest in Chinese companies.
Yan came to New Zealand from China in 1981 on a Rotary Club-sponsored scheme and attended Auckland Grammar. He completed two degrees at Auckland University and worked for Mainzeal during the holiday breaks.
He moved to Australia and then to the United States, where he obtained an MBA from Harvard Business School.
Richina's first investment was the purchase of a 50.9 per cent stake in Mainzeal in May 1995 for $22 million. The purchaser was a consortium comprising Richina Capital and subscribers to this fund owning shares in their own name.
Yan immediately joined the Mainzeal board and the company made a successful takeover offer for Mair Astley at the end of 1995. Mair Astley, which was 50.3 per cent owned by Mainzeal before the bid, had spent most of the previous 12 months negotiating a tannery joint venture with Shanghai Leather Corporation. Yan had played an important role in these discussions.
Financially, the tannery has been a major disappointment.
Mainzeal changed its name to Richina Pacific in September 1996.
The New Zealand company's next Chinese investment was a greenfield salt water aquarium in Central Beijing. This has also produced disappointing investment returns.
Yan was appointed chief executive of the NZX-listed company on October 5, 1999. He lived in Shanghai for most of the early 2000s even though the company's head office was in Auckland.
A number of important developments occurred in the 2000 to 2005 period. These included:
* The Richina consortium terminated on May 3, 2002. This meant that the consortium's stake in Richina Pacific fell from 51.5 per cent to 25.5 per cent with the consortium members holding shares in their own name able to act independently.
* In 2003 the company moved its registered office from Auckland to Bermuda and its head office from Auckland to Singapore. In 2005 the head office was transferred again to Kuala Lumpur. Richina Pacific changed its accounting currency from NZ dollars to US dollars when it moved to Bermuda.
* In 2003 Mobil-on-the-Park - the landmark Wellington office, shopping and car park complex - was sold for $66 million. Wellington property prices have since risen sharply.
* In 2003 the company won the Vector Auckland Arena construction project. This contract, which has generated total losses of $15 million, has been a major problem for the group.
* In 2004 Richina Pacific bought a 90 per cent stake in the Chinese state-owned enterprise Shanghai Leather Corporation for US$20.7 million. Shanghai Leather was Richina Pacific's original joint venture partner in the Shanghai tannery. To fund this acquisition the Richina consortium, which has been reconstituted and now owns 39.6 per cent of Richina Pacific, was allowed to acquire an economic interest in Shanghai Leather. In addition 4.32 million new shares in the New Zealand company were issued to a number of Richina Pacific's directors, including Yan.
Richina Pacific has been a hive of activity since Richina Capital took control in 1995 but it has gone backwards rather than forwards under Yan's stewardship.
The NZX-listed company had a sharemarket value of $44 million when the Yan-controlled Richina consortium bought its initial stake. Since then it has raised $71 million of new capital from shareholders, but its current market value is only $68 million. In other words during a period of enormous prosperity in China, Richina has converted $115 million of shareholder value and new contributions into a current market value of just $68 million.
Despite this dreadful performance Yan's total remuneration has risen from US$470,000 in 2004 to US$810,000 in 2005 and US$865,600 in 2006. His December 2006 year remuneration translates into $1,226,000 at the year end NZ dollar/US dollar rate.
The huge number of changes at Richina Pacific has been more negative than positive. The company has had 19 different directors and five chairmen since Yan took control and its head office has moved from Auckland to Singapore to Kuala Lumpur. Yan lived in Shanghai when Richina Pacific's head office was in Auckland and he now lives in Auckland while its head office is in Malaysia.
Yan seems to spend a large amount of his time travelling between Auckland, New York and Asia.
Does Richina Pacific or Richina Capital pay for Yan's international travel? Does he receive any additional fees from Richina Capital or from other investments of this fund?
A large number of shareholders expressed dissatisfaction at Richina Pacific's recent annual meeting.
But the board of directors, particularly former Prime Minister Jenny Shipley, strongly supported Yan. She argued that the group had a positive outlook under his stewardship.
Nevertheless the strong impression from the meeting was that Yan controlled the board rather than the board controlling him.
It is difficult to understand how the Richina Pacific board can be effective as the company's operations, offices, senior executives and five directors are spread all over the world.
Chairman John Walker is a New York-based lawyer; Roger Wang a Richina Capital executive living in China; Shipley is based in New Zealand; Suet Fern Lee is a Singapore lawyer; while Yan travels the globe.
How can a company with a sharemarket value of only $68 million have such a complicated and expensive structure?
Richina Pacific reported net earnings before unusual items of US$2.2 million for the six months to June 30 compared with a loss of US$0.3 million for the same period in the previous year.
Walker said that the overall profit for the year should comfortably exceed that of last year and be a record in the company's 11 years trading as Richina Pacific. Investors have not responded to these positive comments, mainly because Richina Pacific has failed to deliver on most of its promises over the past decade.
* Disclosure of interest: Brian Gaynor is an investment strategist and analyst at Milford Asset Management and a Richina Pacific shareholder.
