Chongqing sex tape scandal may affect IPO plans of local firms

Chongqing sex tape scandal may affect IPO plans of local firms

Lei Zhengfu, the first official to be sacked as a result of the sex-tape scandal.

The deputy secretary-general of Chongqing, Luo Gang, also chief of the municipal financial office, was sacked on Jan. 24 after videotapes came to light of him having illicit sex with two women in early 2008, making him one of 10 government officials and executives of state-run companies dismissed after being caught up in the city's growing sex-tape scandal, Shanghai's National Business Daily reports.

The scandal may have affected the progress of Chongqing's plan to list its state-run companies in groups, the report said, citing unnamed industry insiders. 18 companies from the southwestern municipality, of which more than half are state-run companies, have applied for initial public offerings.

The controversy began to unfold in November last year when Lei Zhengfu, the party secretary of one of Chongqing's districts, was promptly dismissed after a tape was posted on the internet showing him having sex with a young mistress provided by local property developer Yonghuang Group as a bribe to win construction contracts.

The woman, and others supplied by the group, would secretly video their trysts with the official, giving their employers leverage over Lei if he turned them down for contracts. The reporter who broke the story, Zhu Ruifeng, claims to have similar sex tapes of at least five other officials having sex with young women hired by the developer to entrap them.

Yet even before the sex-tape scandal, the system of Chongqing's state-owned companies had already begun to show weaknesses in recent years, the report said. In 2012, these state-run companies made combined profits of 24.5 billion yuan (US$3.9 billion), up 20% over a year earlier, with a net asset income rate of 7.4% and completed investment totaling 94 billion yuan (US$15 billion), all ranking among the top companies in China, the report said.

In 2011, their total assets reached 1.52 trillion yuan (US$244 billion), up from 2010's 1.25 trillion (US$200 billion). This compared with their total in 2003 of just 170 billion yuan (US$27.3 billion), taking Chongqing from 19th to 4th in terms of the value of state-run companies by province-level region, the report said.

Yet 2008 to the present has seen an explosion in the number of scandals including embezzlement and bribe-taking by executives at local state-owned companies, the report said.

Chongqing has 15 listed companies, placing the municipality first among China's central and western provinces and cities, but out of Chongqing state companies' current total asset size of 1.7 trillion yuan (US$273 billion), the combined market value of listed Chongqing state firms is less than 200 billion yuan (US$32 billion), the report said.

As early as in 2006, Chongqing proposed group listings for its state-run companies. Plans are afoot for the city to take 18 companies public, more than half of which are state-controlled enterprises such as Bank of Chongqing and Chongqing Construction Investment Holdings, the report said.

The (sex-tape) incident may result in restructuring at Chongqing state enterprises, and this may affect the progress of the city's group-listing plans, the report said, citing an unnamed insider.