Summary of the Controversial Incident in the Capital Markets
This is a highly contentious recent event in the capital markets: Minimally Invasive Medical, a well-known domestic medical device giant, along with its listed subsidiaries such as Minimally Invasive Robotics and Minimally Invasive Brain Science, have all encountered difficulties in releasing their semi-annual reports at the prescribed time. The issue has persisted for nearly a month. The catalyst was an seemingly ordinary office rental contract. Over the past five years, 11 companies under the Minimally Invasive group have rented office space from the same landlord, incurring a total rent of 1.3 billion yuan. The rent and deposit amounts were significantly higher than the market rates in the same area of Zhangjiang, Shanghai. Upon further investigation, it was discovered that this landlord was not a foreign real estate developer. From its early name, core employees to the underlying equity structure, there were intricate connections with Chang Zhaohua, the founder of the Minimally Invasive group. In fact, the landlord's related companies had been deeply involved in the financing of several subsidiaries and the employee stock ownership plans of Minimally Invasive. The relationship between the two parties was far from that of a typical tenant and landlord. Minimally Invasive has not responded to any of the public inquiries. The core controversy revolves around whether this high-priced rental agreement was a means of covertly transferring funds from the listed company to related entities controlled by the actual controller, thereby harming the interests of the majority of small and medium shareholders.
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Detailed and Easy-to-Understand Explanation
Why Could a Simple Rental Contract Cause Such Problems for a Group of Listed Companies?
Listed companies must have their semi-annual and annual reports audited by third-party accountants to ensure that all transactions are legitimate and there is no misuse of funds before they can be officially released. In this case, the auditors refused to sign off on the rental contract due to its absurdity:
- Rent Calculation: The landlord charged 5.5 yuan per square meter per day for a 126,000-square-meter office building, while similar well-decorated offices in the same area of Zhangjiang typically cost 3-5 yuan per square meter per day, with many even coming with office furniture. This means that the rent alone amounted to nearly 400 million yuan more than the fair market value over five years.
- Deposit Requirements: It is common practice in Shanghai to require a deposit equivalent to two to three months' rent. Even Zhangjiang High-Tech, a local state-owned enterprise, charges only three months' rent as a deposit when renting out to related parties. However, this landlord demanded a deposit equivalent to one to two years' rent, effectively giving Minimally Invasive 265 million yuan in interest-free funds for free use for five years. The interest on this amount in a bank for five years would amount to tens of millions of yuan. With such an obviously unreasonable expense, the auditors would face significant liability if issues arose later, which led to the delay in releasing the reports for all subsidiaries.
The Identity of the “Mysterious Landlord” Has Been Revealed
Initially, many assumed the landlord was a major foreign real estate developer. However, a check of business registration information revealed the truth: The landlord company, named Hui Qingcheng, was previously known as “Shanghai Minimally Invasive Investment Management Co., Ltd.” Its name contained the word “Minimally Invasive” from the very beginning, and its registered address was in the Zhangjiang office area where the Minimally Invasive group's companies were located. It was clear that the company was established to support Minimally Invasive. Later, to avoid suspicion of a connection, it quickly changed its name.
- Equity Structure: Hui Qingcheng is 100% owned by Huajiaoshu Company, which has two shareholders: the Jinshanjimei Foundation and an investment company registered in an offshore jurisdiction. The Jinshanjimei Foundation was founded by Chang Zhaohua himself in 2012, who served as its first chairman. He later claimed to dedicate himself to charity and donated all his related equity to the foundation, removing his name from the foundation’s board of directors. Ironically, the foundation does not engage in genuine charitable activities; over 90% of its assets are invested, with only a small portion allocated to charitable projects, making it essentially an investment shell.
- Controlled by Minimally Invasive: Although Chang Zhaohua’s name is no longer on the public equity lists, a closer look at the core personnel shows his involvement. The current legal representative and supervisors of Hui Qingcheng, as well as several previous directors, are all familiar with the Minimally Invasive group. Some held original shares in Minimally Invasive Medical; others manage the employee stock ownership platforms of the listed companies; and still others are long-term members of the foundation. The most conclusive evidence is that Hui Qingcheng, Huajiaoshu, and several related companies share the same contact number, which leads to a automated voice message saying “Welcome to call Shanghai Daoxian Medical”—a company incubated by the Minimally Invasive group that Minimally Invasive Medical directly owns shares in.
- Real Control: The landlord, Shanghai Changlong, is not in the real estate business; it is the entity that manages the equity incentives for Minimally Invasive’s employees. It oversees the employee stock ownership platforms of subsidiaries such as Minimally Invasive Robotics and Minimally Invasive Brain Science. It also invested in these subsidiaries before they went public, earning substantial profits from selling its shares. In other words, the “landlord” has been controlling Minimally Invasive’s equity and employee benefits from the beginning, now emerging as a “sub-landlord” to charge exorbitant rent.
The Legal Loophole in the Case
The core controversy lies in the legal definition of related parties. From the surface equity structure, it is difficult to prove that Hui Qingcheng is related to Minimally Invasive, as all equity is held through offshore companies in Hong Kong and the BVI. However, securities law experts point out that related-party transactions are not determined solely by equity ownership. If the personnel appointments and major decisions of these companies are actually controlled by Chang Zhaohua, they can be considered related parties even if his name is not on the equity lists. If this is confirmed to be a related-party transaction, Minimally Invasive violated procedures by failing to disclose the information and seek shareholder approval for the 1.3-billion-yuan rental agreement. As a result, several hundred million yuan in profits from the listed company were quietly transferred to entities controlled by the actual controller, with the ordinary shareholders bearing the consequences.