The Fall of D'Long


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Case Details:

Case Code : BENV009
Case Length : 13 Pages
Period : 1996-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : D' Long Group
Industry : Diversified
Countries : China

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"D'Long is like many private Chinese companies: a history of monumental entrepreneurial zeal combined with a penchant for shady ways of gathering funds to finance their ambitions. And perhaps most troubling of all, many of these companies display a real antipathy to telling anyone--even partners--what they are up to."1

- Far Eastern Economic Review, 2004.

"D'Long is so big, involved in so many different industries, and so deeply involved in the financial system. If D'Long died, it would cause a chain effect. Banks would be hit. The stock market would be damaged. It would harm the overall confidence in the markets. The government cannot allow that to happen."2

- Yin Zhongli, Finance Expert at the Chinese Academy of Social Sciences in Beijing, 2004.

Introduction

In April 2006, Tang Wanxin (Wanxin), President and one of the founders of the bankrupt Chinese conglomerate, the D'Long Group (D'Long), was sentenced to eight years in prison for his role in a fraud described by the local media as 'China's biggest stock scandal'. D'Long, which had failed to repay liabilities amounting to Yuan 16 billion3, was accused of illegally raising more than Yuan 43.7 billion from the public between 2001 and 2004. It was also alleged that D'Long had bought shares worth Yuan 67.8 billion from three of its listed companies, Torch Automobile Group Company Limited (Torch Automobile), Shenyang Hejin Holding Investment Company Limited (Shenyang Hejin), and Xinjiang Tunhe Investment Company (Tunhe) and raked in more than Yuan 9.8 billion from the dealings.

Along with Wanxin, several employees of D'Long were sentenced to prison by The Wuhan Intermediate People's Court.

D'Long was the largest publicly traded company in China and Wanxin and his three brothers, popularly known as the Tang brothers, were among the richest citizens in China. When D'Long was set up in 1986 at Xinjiang, it was just a small service that developed and printed photographs.

It later grew to include food products, construction, machinery, dairy, mining, finance, etc. In order to finance the growing businesses, the Tang brothers inflated the share prices of D'Long's listed companies and obtained loans from banks by pledging these shares. In April 2004, there were reports in the media that D'Long was facing financial problems and that it had pledged equity in listed companies as collateral for bank loans. The stock prices of the listed companies took a plunge and panicky depositors began demanding repayment from the group's investment companies. This led to the collapse of the group.

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1] David Murphy, Ben Dolyen, "Entrepreneurship Gets a Bad Name,"Far Eastern Economic Review, September 02, 2004.

2] Peter S Goodman, "China's Revolutionary Tactic: Bailout,"Washington Post, August 26, 2004.

3] As of February 20, 2006 1 US$ = 7.742 Yuan.

 

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