Behind Ruixing’s proposed board of directors: Cracks in Liu Erhai iron triangle between Lu Zhengyao and Li Hui


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Wen / Lei Jianping
Source: Lei Jianping (ID: touchweb)
Report of Lei Jianping on June 21
Since Ruixing coffee exposed 2.2 billion financial frauds, the whole Shenzhou Department has been involved in the ups and downs, and the investors of Ruixing coffee have also been involved.
However, in the months of public opinion attacks, Ruixing coffee’s management and investors are still in step with Ruixing coffee Chairman Lu Zhengyao.
But yesterday morning, Ruixing coffee issued a notice to break the silence. Ruixing coffee announced that it will hold a special general meeting of shareholders on July 5, which will discuss matters such as the removal of the appointment of directors of Chairman Lu Zhengyao, Li Hui and Liu Erhai, and the removal of the appointment of independent director Sean Shao.
Ruixing coffee also proposed to join two new independent directors, Ying Zeng and Jie Yang. Both candidates for independent directors have deep legal background.
Once Lu Zhengyao, Li Hui, Liu Erhai and Sean Shao are removed, all members of the board of directors of Ruixing coffee will leave when it exposes the fraud.
This strange meeting of the board of directors seems to be Ruixing coffee to get rid of the fraud scandal. The board of directors let Lu Zhengyao, Li Hui and Liu Erhai all retreat.
However, in the view of people close to Ruixing coffee, the truth is not so simple. The information is that Lu Zhengyao is going to kick Lihui and Liu Erhai out of the game, hindering the independent investigation organization from investigating Ruixing coffee fraud.
Lu Zhengyao and Li Hui, Liu Erhai have different interests
Lu Zhengyao, Li Hui and Liu Erhai were once regarded as the iron triangle. They fought closely in the three projects of Shenzhou car rental, Shenzhou special car and Ruixing coffee. The three 50 year old “old men” cooperated closely and sent many companies to the market.
Li Hui’s Dazhen capital and Liu Erhai’s joyful capital all play a great role in the growth process of Ruixing coffee. In the two rounds of important financing before the listing of Ruixing coffee, Dazhen capital and joyful capital are both involved.
On July 11, 2018, Ruixing coffee completed round a financing of 200 million US dollars, with a post investment valuation of 1 billion US dollars;
In December 2018, Ruixing coffee completed another round B financing of US $200 million, with a post investment valuation of US $2.2 billion, involving joyful capital, Dazheng capital, Singapore government investment company (GIC), CICC, etc.
Before IPO, Lu Zhengyao held 30.53%, Qian Zhiya 19.68%, Mayer Investments Fund, L.P. 12.4%, Dazheng capital 11.9% and joyful capital 6.75%.
In January 2020, Ruixing coffee completed the issuance of additional and convertible bonds. The total financing amount of green shoes is US $980 million in the front and US $1.13 billion in the back. Among them, a small amount of shareholders’ capital was reduced, with a cash out of 230 million US dollars.
For Lu Zhengyao, Li Hui and Liu Erhai iron triangle, the Ruixing coffee project is a win-win project and a loss project. Why would there be cracks?
The reason is that the interests of Lu Zhengyao, Li Hui and Liu Erhai are not the same after Ruixing coffee exposes its financial fraud.
Lu Zhengyao may face criminal prosecution
After the outbreak of the counterfeiting of Ruixing coffee, Ruixing coffee established a special committee (“special committee”) to supervise the internal investigation of certain issues brought to the attention of the board of directors in the audit of the consolidated financial statements for the financial year ended December 31, 2019.
The special committee is composed of three independent directors of the board of directors, Sean Shao, park tianruo and Wei Yuanzong, with Shao as the chairman. The special committee has retained independent counsel for internal investigations, including independent legal counsel and legal accountants. The special committee has appointed Kirkland & Ellis as an independent external consultant.
Recently, Ruixing coffee announced that Pu tianruo, an independent director, resigned for personal reasons. After Pu tianru resigns, Sean Shao and Wai Yuen Chong will remain as members of the audit committee and the special independent committee of Ruixing coffee, of which Sean Shao is the chairman.
The board of directors to be held by Ruixing coffee will not only remove the appointment of the Chairman Lu Zhengyao and the directors of Li Hui and Liu Erhai, but also remove the appointment of the independent director Sean Shao. Once the appointment of Sean Shao is removed, it means that the independent investigation within Ruixing coffee will not be sustainable.
According to people familiar with the matter, Haode investment, a family trust controlled by Lu Zhengyao, sent a letter to Ruixing coffee asking for the convening of an independent board of directors to propose a resolution to replace the independent directors. Ying Zeng and Jie Yang, who are to be appointed as independent directors, are Lu Zhengyao’s own people.
It can be understood why Lu Zhengyao’s interests are not consistent with those of Li Hui and Liu Erhai. Lu Zhengyao is the actual controller of Shenzhou department. In this independent kingdom, Lu Zhengyao is the absolute leader.
According to Caixin, which quoted regulators as saying that the relevant departments have mastered Lu Zhengyao’s mandatory e-mail about the company’s financial fraud, Lu Zhengyao may be prosecuted and most likely face criminal prosecution.
Therefore, it can be expected that Lu Zhengyao is not willing to continue the independent investigation when Ruixing coffee dismisses the CEO and coo and the reorganization management shows the company’s determination to change, but the spearhead still points to Lu Zhengyao, the actual controller behind. But it is certainly not wise to stop independent investigations.
Li Hui and Liu Erhai, on the other hand, are external investors, who mainly obtain benefits through investment.
For Li Hui and Liu Erhai, it’s good for their respective funds to insist on independent investigation, which can prove that Dazheng capital and joyful capital are only investors, and they don’t know about the fraud of Ruixing coffee.

According to external analysis, the Haode investment fund under Lu Zhengyao advocates the convening of this board of directors, which aims to eliminate dissidents, completely replace the board of directors with Lu Zhengyao’s own people, and realize the control over everything. It is only Lu Zhengyao’s practice that pushes Li Hui and Liu Erhai to the opposite side.
The so-called face of crisis, no friends, only interests, Lu Zhengyao instead presents a lonely image.
People close to lucky coffee also said that shareholders are still in the process of communication and coordination, and everything has not been finally decided.
Some insiders pointed out that Ruixing coffee actually operated well. If we change major shareholders, the company can still operate. For Ruixing coffee, the most important question is whether to protect the company or Lu Zhengyao. If the conflicts between the major shareholders of Ruixing coffee become public, it will not cause trouble to the current operation of Ruixing coffee.
However, Lu Zhengyao’s problem is not that of his own, but that of many enterprises around the world.
In the United States, Hertz (HTZ), an American teacher who rents cars in Shenzhou, has filed for bankruptcy. The Shenzhou car rental, Shenzhou special car and baowo controlled by Lu Zhengyao are all heavy asset businesses, which have been hit under the epidemic. However, Ruixing coffee counterfeiting has aggravated the crisis of the Shenzhou Empire of Lu Zhengyao.
(statement: This article only represents the author’s point of view, not Sina’s point of view.)