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Fanhua Plans to Set up Independent Special Committee to Review Allegations

​In the announcement today, Fanhua reiterated that the short-seller report contained "misleading speculations and malicious misinterpretations of events."

Shirley Tian
    Feb 08, 2019 4:55 PM  PT
Fanhua Plans to Set up Independent Special Committee to Review Allegations

Fanhua Inc. (Nasdaq: FANH), which provides insurance and financial services in China, announced today that it formed a special committee to conduct an independent review of the allegations raised in several reports issued recently. 

The committee is comprised of three independent directors of the company, Allen Lueth, Stephen Markscheid, and Mengbo Yin, and is authorized to retain independent advisers in connection with the investigation, the company said.

Fanhua was hit by a short-seller report published by J Capital a month ago. Fanhua immediately issued a rebuttal, saying the report included groundless accusations and deliberate out-of-context misinterpretations. Shares of Fanhua, however, continued to slide in New York despite the strong response and a promise to increase the dividend for 2019.

In the announcement today, Fanhua reiterated that the short-seller report contained "misleading speculations and malicious misinterpretations of events."

A month ago, J Capital analyst Anne Stevenson-Yang issued a 50-page report alleging that Fanhua was uninvestable because it "robbed public shareholders" by claiming to have sold its property and casualty insurance division to a third party, Cheche. J Capital said it suspected "the new company is related to Fanhua executives."

Fanhua, however, argued that "the company's divestiture of its P&C insurance subsidiaries is a correct and proper strategic decision," and "neither Fanhua nor Fanhua's management team has any prior ties to or equity interest in Cheche." 

But Fanhua admitted the two companies do have a close connection. Fanhua maintains business cooperation with Cheche in the way that Fanhua introduces user traffic to Cheche, while Cheche is responsible for transaction processing for which Fanhua charges Cheche certain platform service fees based on transaction volume. 

Stevenson-Yang also alleged Fanhua "developed a huge commercial real estate project in the founder's hometown for more than two years without telling investors."

In response, Fanhua said it "had neither a license nor interest in real estate development." But in 2016, Fanhua established a joint venture with an independent third-party real estate developer, Sichuan Tianyi Real Estate Development Co. Ltd. 

"Under this arrangement, Sichuan Tianyi would be responsible for developing the land and providing all funding for the development and bear all loss or profits that potentially could derive from the development, while Fanhua would have a right to purchase certain properties at a discount," Fanhua explained. "Fanhua would not provide any loan, guarantee or other funding for the development."

To show management's full confidence in achieving solid growth in the company's operating profit in 2019, Fanhua said in January that "our management will submit a proposal to the board to increase the dividend per [American Depositary Share] for fiscal year 2019."

Shares in Fanhua closed today at $25.73 per ADS, up 1 percent.

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