China’s super wealthy couples are turning to divorce as a way to cash out stock and avoid tough sales restrictions. A slew of high-profile splits—nicknamed “sky-high divorces” because they are tied to high stock prices—have made the news recently, with massive quantities of stock changing hands in divorce settlements.
Analysts say corporate shareholders are employing the strategy for a variety of reasons, including the shaky state of the Chinese economy and the iron grip of Chinese leader Xi Jinping. The communist leader’s “common prosperity” mantra has caused many wealthy Chinese to fear for both their financial and personal safety.
But for the executives who control China’s corporate giants, restrictions on the sale of A-shares—shares of mainland companies that trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange—make it difficult to cash out. Divorce settlements offer a way around those restrictions.
On June 20, Maxscend Technologies announced that Tang Zhuang, its controller, director, and deputy general manager, gave 6.1 percent of its shares to his ex-wife, Yi Gebing, as part of their divorce. The settlement, worth about 3.4 billion yuan ($473 million) totaled more than 80 percent of Tang’s holdings in the company. Shares of the chip enterprise tanked after news of the settlement broke.
The $1.25 Billion Break-up
Two months ago, an even more dramatic break-up made headlines, involving the founder and chairman of Chinese cybersecurity giant 360 Security Technology Inc.Zhou Hongyi agreed to hand over 446 million shares, equal to nearly 6.3 percent of the company’s total, to his ex-wife, Hu Huan. The settlement totaled almost 9 billion yuan, or about $1.25 billion.
Zhou had held about 800 million shares of 360 Security, accounting for almost 12 percent of the total share capital of the company.
Hu did not own shares of the company before the change in equity. She was not involved in the company; therefore the change in equity had no substantial impact on its operation and management.
Cashing Out Post Divorce
After the behemoth settlements, many wealthy ex-wives reduce their holdings or cash out.The latest example of this is Li Qiong, the ex-wife of billionaire Zhou Yahui. Zhou made his fortune as founder of game developer Kunlun Tech. In 2016, the couple divorced, and Li walked away with Zhou’s 298 million shares of Kunlun stock. Her shareholdings increased to 26 percent, worth nearly 7.5 billion yuan (around $1 billion).
A Question of Expediency
China is not the only country to make headlines for high-profile divorce cases, with mammoth stock settlements.For instance, last year, in one of the most watched divorces, Microsoft’s Bill Gates transferred 2.4 billion in stocks to his wife, Melinda, upon their divorce.
And in July 2019, Amazon’s Jeff Bezos transferred $38 billion to his ex-wife, MacKenzie, making it the largest divorce settlement in history, and immediately making the former Mrs. Bezos the world’s fourth wealthiest woman.
MacKenzie Bezos promised to give away at least half of her fortune. In January 2020, Forbes reported that she had sold, gifted, or transferred about $350 million worth of Amazon shares.
What makes China different is that major shareholders of companies that are listed on Shanghai or Shenzhen exchanges cannot arbitrarily reduce their shares, since CCP regulators have strict rules in this regard. However, major shareholders can get around these restrictions by transferring their shares to their ex-spouses, who are usually exempt from the restriction, Japan-based current affairs commentator Li Yiming told The Epoch Times on June 24.
An ex-spouse “probably doesn’t work for the company, or even has nothing to do with it,” Li said. As an ordinary investor, the ex-spouse “can sell ... shares at any time to cash out,” Li said.
On the flip side of the coin, sometimes a divorce keeps stock in the family.
Leaving a Sinking Ship
Li said that while not all sky-high divorces are simply a means of cashing out, the motivation for many of the splits “can be understood at a glance.”“The economic situation in China is clearly getting worse and worse,” he said. “Many rich people want to flee, but most of their wealth is in the stock market, so how can they transfer their wealth? [They] have to find a way to reduce holdings and cash out.”
“The CCP boat is going to sink, but before it sinks, everyone wants to maximize as much profit as possible. That’s what the whole Chinese society thinks now.”
Meanwhile, China is expected to once again lead the world in wealth migration.
The figures do not include Hong Kong, which is expected to lose another 1,000 millionaires this year.
