Mainzeal failure yet another case of poor back room governance

Unfortunately, the collapse of Mainzeal’s property and construction division will show that plenty of past lessons still haven’t been learnt.

Good corporate governance is a rare commodity in the building and construction industry, save for a few exceptions, with Fletcher Building an obvious example.

This week’s receivership of Mainzeal Property & Construction and associated entities also adds weight to the uncomfortable theory that having a former member of parliament on your board is a screaming sell signal.

Mainzeal’s problems go back more than a decade but they were always someone else’s fault, with directors quick to blame “events totally outside our control” for whatever losses were racked up.

Be it leaky buildings, 9/11, the Asian crisis or the global financial crisis, Mainzeal always had an excuse.

Little surprise then that most of the Mainzeal board flew the coop at the end of December.

Former prime minister Dame Jenny Shipley, former Brierley chief executive Paul Collins and Tauranga businessman Clive Tibby quietly slid out the door apparently at the request of Yan Ciliang, or Richard Yan as he is known in English.

Mr Yan is the founder of the Richina Group, Mainzeal’s ultimate shareholder and is the legal representative of all its subsidiaries.

He came to New Zealand from China and attended Auckland Grammar before he went to Harvard and returned to co-found Richina Group in 1988.

According to the blogger Chinesewalker, written by Shanghai reporter Xu Shuda, not much is known about Yan or Richina itself for that matter.

“There is almost nothing in the Chinese media about this corporation and few would recognise the name of its boss, financier Yan Ciliang,” Xu wrote in a March 2010 article headed Who runs Richina?

And yet the group purports it’s a really big player both here and in China – its website [now not working] describes four sectors: financial services, real estate, consumer and manufacturing.

“Richina has leveraged its New Zealand base to actively invest in and operate numerous businesses in China that have benefited from China’s extraordinary growth over the past 20 years,” the website says.

In China it operates the Shanghai Leather Corporation making leather chemicals, shoe, leather garments, luggage and athletic balls.

Here in New Zealand there is the Mainzeal real estate arm and Richina Finance, a finance company that it says has the objective of securing a full banking license that will “attract depositors from China who wish to diversify their offshore financial holdings but will focus its lending activities onshore in New Zealand”.

But apart from the website spiel there is no real transparency in the group.

Richina has always flown under the radar, even when Richina Pacific was listed on the NZX up until 2008.

Fortunes boosted
In 2001 the company’s fortunes were boosted by the sale of its major New Zealand assets, Mair Venison and Colyer Mair.

That followed a strategic review where the company decided, “the best long-term interests of the company would be served by focusing on those businesses which had the potential to be world market leaders.”

Those happened to be based in China rather than New Zealand, raising the question of the Shoeshine of the time of Richina’s future on the local sharemarket, especially as its major investors are also based overseas.

The company was originally controlled by a group of US investors, known as the Richina Consortium. This broke up in 2002 but many individual members kept their stakes.

Following the sale of Mair Venison and Colyer Mair, Richina was left with its China assets and its construction subsidiary Mainzeal.

In early 2005 NBR reported that Richina Pacific shareholders should start demanding answers about the performance of Mainzeal.

Its last six annual reports showed an average profit margin for Mainzeal of 1.2%. On the back of a booming construction market Mainzeal received $2 billion in revenue from 1999 to 2005 and turned just $21 million of that into net profit.

How long would it last?
The question was asked: if Richina struggled so much to make money from construction boom times in its New Zealand comfort zone, how long would it last in the cut-throat world of Chinese property development?

Perhaps the receivership of Mainzeal Property and Construction answers that question today.

When global credit markets froze in 2008 Richina decided to take itself private through an amalgamation transaction.

The problem was not all shareholders got paid out at the 45c a share price at the time, leaving about 800 shareholders trapped.

The company reportedly decided to try and “help them” by listing on the Unlisted market and buying out shareholders “under certain conditions.”

But not a single share was traded in 2009.

Today there are still more than 100 of those shareholders on the Richina share register.

In a statement from the receivers of Mainzeal Property and Construction, Mr Yan apparently advised that lack of shareholder support was one of the reasons for receivership.

Shoeshine can only wonder how that will go down with those who are left holding Richina share parcels, especially given that they probably haven’t received any correspondence from the company in two years.