About Xinhua Finance

Xinhua Finance

Overview

Xinhua Finance Limited was a Shanghai-headquartered financial information and media company that described itself as China's premier financial information and media service provider. Founded in November 1999, it set out to build for China's young capital markets the basic information infrastructure that mature markets take for granted. The company was listed on the Mothers Board of the Tokyo Stock Exchange under the symbol 9399, with over-the-counter American depositary receipts trading under the symbol XHFNY, and it served financial institutions, corporations and re-distributors through service lines covering indices, ratings, financial news, investor relations and distribution. Its name linked it to Xinhua News Agency, China's official state news agency, and its financial content business rested on a long-term exclusive agreement signed in 2000 with the China Economic Information Service of Xinhua News Agency. Xinhua Finance is best understood as a product of a particular moment: the years around China's accession to the World Trade Organization, when foreign investors wanted trusted data on Chinese markets and Chinese institutions wanted the tools — benchmarks, ratings and financial news — that global capital expected.

Founding and leadership

Xinhua Finance Limited was founded in November 1999 and headquartered in Shanghai, with offices and news bureaux spanning more than a dozen countries; a company statement in 2007 put the footprint at offices and news bureaus in 14 countries worldwide. Its chief executive and founder was Fredy Bush, who remained CEO through the company's most public years and whose family trust and associated companies appear among its shareholders in its 2005 annual report. In the company's own telling, in its 2005 annual report, the founding insight was that in 1999 China was still not part of the WTO, Beijing had not been awarded the 2008 Summer Olympics, and much of the economy was tightly controlled or lacking clear regulations, particularly in the financial markets — obstacles the founders said they viewed instead as unprecedented opportunities for helping China set standards that did not yet exist in its financial markets. Other senior figures named in its 2007 statements include chief operating officer Daniel Connell and president Jae Lie, both described by the company as having been with it for many years.

The agreement with Xinhua's economic information service

The foundation of the business was its relationship with the China Economic Information Service, known as CEIS, the organisation within Xinhua News Agency responsible for Xinhua's economic news and information operations and business, registered at 57 Xuanwumen Xidajie in Beijing. Xinhua Finance operated under a long-term exclusive agreement signed in 2000 with CEIS for Xinhua financial content. The paperwork of that relationship is visible in a content licence agreement dated 15 December 2001 between CEIS and Xinhua Financial Network Limited, a company incorporated in Hong Kong with a registered office at Room 2003-4, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong. That agreement, expressed to be a supplement to an exclusive broadcasting agreement, describes CEIS as the owner and distributor of certain content of Xinhua News Agency. The arrangement gave the young company its defining asset — privileged access to the state agency's financial content — and its defining question, since the value of the business depended on how exclusive, and how durable, that access remained.

Building China's financial information infrastructure

The company's strategy was stated plainly in its 2005 annual report. Major capital markets around the world, it argued, rely on three primary financial information services: financial news, market indices and credit ratings, and investors depend on these services to make well-informed decisions. As China's financial markets continued to open and mature, those fundamental services would become more and more critical, and that information infrastructure was what Xinhua Finance set out to create for China. Over its first six years, the annual report said, the company built a suite of products while working to improve the synergies, performance and market position of its companies. It also presented a governance message to investors, stating its commitment to promoting corporate governance and information disclosure. Its vision for the following years was to use its client base of leading financial institutions and corporations to expand toward China's growing number of high net worth individuals, imagining, in its own example, a fund management company that used Xinhua Finance indices to create products while its executives read Xinhua Finance news and ratings reports on their workstations.

Service lines

By the middle of the 2000s Xinhua Finance organised its business in five focused and complementary service lines: Indices, Ratings, Financial News, Investor Relations and Distribution. Through that proprietary content platform it served financial institutions, corporations and re-distributors worldwide, presenting its role as bridging China's financial markets and the world. Its data and analytics portfolio, as described in its partnership announcements, included market indices, financial data banks, credit ratings assessments, financial modelling tools and a market risk management platform. The distribution side of the business included the corporate announcement service Xinhua PR Newswire, operated as an alliance with PR Newswire, which distributed client press releases through PR Newswire's global network. The five lines were designed to reinforce one another: the same company that calculated an index could rate the companies in it, report financial news about them, manage their investor relations and distribute their announcements.

Indices and the FTSE relationship

Indices were the most internationally visible part of the business. Xinhua Finance was FTSE Group's partner in the FTSE/Xinhua index joint venture, and its chief executive Fredy Bush was a director of that venture, known as FXI. Contemporary trade reporting described the FTSE/Xinhua family as including a China 25 index covering mainland Chinese B shares and some H shares and red chips, alongside A share-only indices, and quoted Bush saying that outside China the vast majority of qualified foreign institutional investor business was being written against FTSE/Xinhua indices, with Citigroup and Goldman Sachs among the participants launching structured products against the benchmark. Rival accounts in the same reporting disputed how widely the indices were used by fund managers, a reminder that benchmark status in China was fiercely contested at the time among FXI, exchange-backed indices such as the Shanghai SE 180 and domestic providers. In April 2008-era reporting on a separate initiative — dated 28 April in the company's release — Xinhua Finance and the Milken Institute jointly released a Chinese Privatization Indicator and a Chinese Mergers and Acquisitions Indicator, to be updated quarterly, tracking China's transformation toward a more market-oriented economy using Xinhua Finance's local know-how and the Milken Institute's research methodologies, with indicator history for privatisation value extending back to December 2000.

Risk, ratings and banking software

The ratings and solutions side of Xinhua Finance extended into bank risk management. On 16 July 2007 the company announced an exclusive agreement with Fermat, a provider of risk and performance management solutions to the global banking industry, to distribute and support Fermat's Basel II, risk and performance management software solutions in mainland China. Xinhua Finance said Fermat's solutions complemented its portfolio of data and analytics products, and the two companies worked together to adapt the software to China, creating country-specific configurations in a Chinese-language interface. Announcing the deal, Fredy Bush said most Chinese banks' Basel II initiatives were still being defined or in early planning stages as the market awaited the China Banking Regulatory Commission's detailed interpretation of the accords, and described the alliance as an integral step in executing the company's solutions strategy, leveraging its understanding of international standards and China's financial and regulatory environment to help Chinese financial institutions compete in the world economy. The episode shows the breadth the company claimed: not only publishing indices and ratings, but selling the compliance software through which banks would apply international capital rules.

The Tokyo listing

Xinhua Finance's visibility rose sharply with its listing in Japan. Its 2005 annual report records that the company's successful listing on the Tokyo Stock Exchange in late 2004 made it the first China concept company to go public in Japan and the first foreign company with a primary listing in the Japanese market. The company said it chose Japan because it was the world's second largest capital market and because Japanese investors had a clear understanding and appreciation of investment opportunities in China, and that the successful initial public offering helped it begin 2005 with a strong equity and cash position. The shares traded on the Mothers Board, the Tokyo exchange's market for growth companies, under symbol 9399. The shareholder register published in the 2005 annual report shows a mixed base, including Nissin Co., Ltd. with 14.85 per cent, a Japanese-corporation-owned China media company interest, the Fredy Bush Family Trust and associated companies with 5.34 per cent, and Xinhua Development Holdings holding shares for and on behalf of institutions connected with Xinhua News Agency.

Xinhua Finance Media

The group extended from data into media through its subsidiary Xinhua Finance Media Limited, known as XFMedia, which listed on Nasdaq under the symbol XFML. Xinhua Finance described XFMedia as China's leading diversified financial and entertainment media company targeting high net worth individuals nationwide, reaching its audience through television, radio, newspapers, magazines and other channels. XFMedia operated through five business groups — Advertising, Broadcast, Print, Production and Research — and was headquartered in Beijing with offices and affiliates in major Chinese cities including Beijing, Shanghai, Guangzhou, Shenzhen and Hong Kong. Xinhua Finance held 36.9 per cent of XFMedia's equity and 85.4 per cent of its voting rights through class B common shares carrying ten votes per share, according to a June 2007 acquisition announcement by XFMedia, in which it completed the acquisition of a 100 per cent interest in Singshine (Holdings) Hongkong Limited. In August 2007 XFMedia's advertising group was appointed exclusive strategic partner of a unit under China's General Administration of Sport to jointly operate a promotion group supporting the 2008 Beijing Olympic Games, with rights connected to Olympic Live Sites in various cities.

Governance pressure and the 2007 downgrade

The company's public record in 2007 shows strain. On 25 May 2007 Fredy Bush issued a statement saying that her management team was intensely focused on running and building the business, that numerous inaccurate and misleading statements had been made about the company, and that its fundamental strengths had not changed. On 17 September 2007 the company publicly disagreed with a ratings downgrade by Standard & Poor's, which had lowered Xinhua Finance's corporate credit rating to "B" from "B+" with a stable outlook, citing continued concern about evolving corporate governance issues, stabilisation of the senior management team and the potential business impact of negative media coverage since May 2007. The company said S&P's financial metrics did not accurately reflect its operations, that it was in full compliance with Tokyo Stock Exchange corporate governance requirements, and that its net debt was far lower than the agency's total debt figure implied, putting total debt at 224 million US dollars including finance leases against cash on hand of 156 million dollars and 40 million dollars in short-term note investments. It acknowledged two senior departures since June 2007 — chief financial officer Gordon Lau and investor relations managing director Sun Jiong — while arguing that neither role directly affected earnings generation.

Sale of the announcement business and legacy

In November 2008 the group's shape changed when PR Newswire announced a definitive agreement with Xinhua Finance to acquire Xinhua PR Newswire, described in that announcement as the first and largest corporate announcement distribution service in China, together with Xinhua Finance's corporate announcement businesses in Hong Kong, Singapore and Taiwan. Xinhua PR Newswire was rebranded as PR Newswire China and the other operations as PR Newswire Asia, with management, employees, customer relationships, contracts, office space and operational processing transferring to PR Newswire. The sale removed the distribution arm that had been one of the group's five service lines. Xinhua Finance's historical significance does not depend on its later fate, about which the sources used for this profile say little: between 1999 and the end of the 2000s it was the most prominent attempt to build a commercial, internationally listed financial information business on the foundation of Xinhua content — the first China concept listing in Japan, a partner in the FTSE/Xinhua indices, a ratings and risk-solutions provider, and the parent of a Nasdaq-listed Chinese media company. Its record also captures the tensions of that model, between a state agency's content and a listed company's governance, which surfaced publicly in 2007.