The share price of Jiumaojiu International Holdings, the operator of one of China’s most successful seafood restaurant chains, recently plunged following the revelation of habitual corporate governance issues at the firm.
Guangzhou-based Jiumaojiu, which operates the Tai Er chain of restaurants that is well-known in the country for serving fish with sauerkraut, has seen its share price tumble over 80 percent from early 2022, falling to a mid-December 2023 price of HKD 6.21 (USD 0.86, EUR 0.75) per share after being traded as high as HKD 31 (USD 4.34, EUR 3.72) the year before.
Jiumaojiu operates nearly 500 outlets of Tai Er across China, according to its 2023 interim report, and also oversees other brands, including Lai Mei Li Grilled Fish and the Song Hot Pot chain. Globally, the company had 621 restaurants in its operational portfolio as of 30 June 2023, with a footprint in China, Canada, Hong Kong, Malaysia, and Singapore.
A major buyer of catfish, pangasius, tilapia, snakehead, and perch, the Tai Er chain opened 46 new outlets in the first half of 2023, while Jiumaojiu’s smaller Lai Mei Li grilled fish restaurant chain opened four new outlets.
In previous years, investors had been enthused by the success of Tai Er, which raked in sales of CNY 2.1 billion (EUR 294 million, USD 273 million) in the first half of 2023. However, stock-buyers soured on the firm when it announced that a wholly owned subsidiary of Jiumaojiu lent money to another company owned by Guan Yihong, the chairman and founder of Jiumaojiu. The CNY 81 million (USD 11.3 million, EUR 10.5 million) loan, which has since been repaid, did not receive approval from the company’s board, which is required under Hong Kong stock market rules.
The loan incident that led to the steep dropoff in share prices was not the first corporate governance issue that has plagued the firm. A similar incident occurred in 2022, when Jiumaojiu’s board disclosed the firm had invested in a commercial real estate project in Guangzhou without informing investors as required by stock market rules.
The subsequent drop in Jiumaojiu share prices could significantly limit the company’s ability to raise capital,
This has been a troubling trend for Chinese seafood-related firms. Shandong Oriental Ocean Technology, which specializes in breeding sea cucumber, has seen both its share price and revenue collapse while it struggles to repay large sums of debt.
Amid bitter internal disputes between shareholders and board members, Oriental Ocean said it lost CNY 1.58 million (USD 221,000, EUR 205,000) in 2022 in what it attributes to lower sea cucumber production levels – and a shortage of cash to invest in seedlings – for a collapse in earnings from CNY 238 million (USD 33.3 million, EUR 30.9 million) annually to CNY 83 million (USD 11.6 million, EUR 10.7 million) combined over the past five years. It also blamed the losses on a diversification strategy gone wrong. Its move into the medical products industry – aimed at reversing earnings trends – has been a loser for the company.
Complicating the matter further, Oriental Ocean has had several run-ins with the country’s regulators. In 2019 and 2020, the company received warnings from securities regulators tasked with delisting nonperforming stocks after the company reported losses over those two years. The Shenzhen Stock Exchange in 2020 also criticized Che Dong – the company’s chairman and CEO at the time – for the timing of his sale of company shares.
Damage to investor confidence from lower corporate governance standards has come at a turbulent time for Chinese companies needing cash to grow, frightening away Western investors, including major banks and fund administrators with holdings in Chinese companies.
Foreign and domestic investors are already increasingly cautious about the Chinese economy. Extranational investments in China's stock market plunged in November 2023 due to a worsening debt crisis at Evergrande, a major property developer. The company has accrued huge debt that has sucked confidence out of China's real estate sector, traditionally a major contributor to the nation’s GDP growth.
“The real estate crash and local government bonds still remain the main risks, and these two issues are highly correlated,” the Chinese offices of Spanish bank BBVA stated recently.
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