Feng Xin at a summit in 2016 (Photo/Tuchong) 

July 29 (NBD) -- Feng Xin, the actual controller and chairman of Chinese tech firm Baofeng Group Co Ltd (300431.SZ) has been detained by police for suspected crime and the relevant issues are still under investigation, the company announced on Sunday evening.

Baofeng Group's operations remain normal, it said.

Shares of Baofeng Group tumbled by 10 percent daily limit to 5.67 yuan (0.92 U.S. dollars) as soon as the Monday trading started.

The actual controller Feng Xin was arrested on bribery in the course of financing the acquisition of Luxembourg-based sports copyright company MP & Silva Holding that was jointly conducted by Baofeng and Everbright Capital Investment in 2016, news outlet Yicai Global reported citing a source.

Market cap tumbled by 95 pct

Baofeng Group, meaning "storm" in English, used to be a well-known software maker for video downloading and playing. It reported 280 million users of its flagship product Baofeng Yingyin in 2009, accounting for 73 percent of the total number of Internet users at the time. The company also engaged in businesses including Internet TV, virtual reality (VR) products and sports broadcasting.

Choosing the A-share market over the U.S. bourses, Baofeng Group began dismantling its VIE structure in 2010 and 5 years later, it debuted on the Shenzhen Stock Exchange with the offering price of 7.14 yuan.

National Business Daily (NBD) noticed that jumping on the trend of market bull, the group's share price rose by 10 percent daily limit for 36 days within 40 days of listing, and once topped 327.01 yuan in late May, up 4,500 percent from its offering price.

Baofeng Group became the best performing stock in the market in the following three months. The market value of the company ever rocketed to 40 billion yuan at that time. 

However in contrast to constantly soaring stock price, the group's financial performance dissatisfied the investors.

It posted a decrease of 70.73 percent in net profit attributable to shareholders of the listed company in the first half of 2015. The stock then went down from the middle of June, which rebounded slightly later in September.

The "crazy stock" have been declining since October 2016. And, Baofeng Group's market cap has shrunk up to 95 percent compared to the peak in May 2015.

Risk of trading suspension

In a separate announcement released on Sunday, Baofeng Group warned of the risks of negative net assets for the year of 2019, as the company stopped consolidating net profits and cash flow of its Internet TV subsidiary. Besides, the company posted a net loss of 110 million yuan in the first quarter of this year and the asset-liability ratio has been over 100 percent.  

NBD noticed that with net assets being negative, Baofeng Group may face the risk of trading suspension as per regulations of the stock exchange.

It is noteworthy that Baofeng Group has turned loss-making since last year. Its annual earnings report shows that it registered 1.09 billion of loss in 2018.

Some industry insiders held that Baofeng Group's financial predicament largely resulted from failure of business shift.

The company launched its first VR product in 2014, and it made foray into Internet TV sector the next year. But the VR segment reportedly cut around 50 percent of positions in 2016 and both attempts led to heavy losses.

In 2016, Baofeng Group sought to expand presence in sports field by purchasing MP & Silva Holding with and Everbright Capital Investment. But the sports firm ended up with bankruptcy last year and Baofeng Group reported 190 million yuan as impairment of assets provision.

In addition, the company later published a new hardware based on blockchain technology in December of 2017. The business was halted in January 2018 after the National Internet Finance Association of China accused Baofeng Group of illegal ICO.

Now with its actual controller detained by the police, will Baofeng Group ride out the storm?

Email: gaohan@nbd.com.cn