(Yicai Global) Oct. 20 -- Shanghai Dongzheng Automotive Finance, China’s first listed auto finance company, announced today that state-backed Xiamen Xindeco will spend HKD1.4 billion (USD181 million) to become its controlling shareholder. Regulators ordered its previous controller to divest on suspicion of illegal related-party transactions.

Dongzheng’s controller China ZhengTong Auto Services Holdings informed the company on Oct. 19 that its controlling shareholders Joy Capital Holdings and Wang Muqing had sealed a deal with Xiamen Xindeco, in which Joy Capital agreed to sell ZhengTong’s shares, representing 29.9 percent of voting rights, to the Xiamen-based firm, Dongzheng said in a filing to the Hong Kong stock exchange today.

On completion, Xindeco will become ZhengTong’s largest single investor, indirectly controlling Dongzheng, meaning that it will be effectively taken over by a state-owned company.

Dongzheng was set up in March 2015 with joint investment of CNY500 million (USD74.8 million) by ZhengTong and state enterprise Dongfeng Automobile, and went public in Hong Kong last April. As of June 30, ZhengTong owned 71.04 percent of Dongzheng.

The Shanghai branch of the China Banking and Insurance Regulatory Commission today released a document saying that since Dongzheng’s setup in March 2015, ZhengTong, its affiliates and Dongzheng had been illegally conducting related-party transactions, which seriously jeopardized the stable operation of the auto financing firm.

ZhengTong won approval to form Dongzheng with illicit means and illegally conducted related-party transactions, with its dealer auto loan business in serious violation of prudent operation rules.

The regulator ordered Dongzheng to liquidate the holdings of controlling shareholder ZhengTong and ordered the company to suspend its dealer auto loan business, without disclosing further details.

Xindeco is mainly engaged in the information technology, auto trade and supply chain business. Xiamen ITG Holding Group, solely owned by the State-owned Assets Supervision and Administration Commission of the Xiamen city government, has 29.18 percent of Xindeco’s equity, according to corporate information provider Tianyancha.

Though the administrative license of the company’s controlling shareholder has been revoked, the state-owned company can reapply for another license, a senior practitioner in the auto financing industry told Yicai Global.

Trading in Dongzheng [HKG: 2718] shares was halted today. Shares of ZhengTong [HKG: 01728] closed down 2.8 percent at HKD1.05 (USD0.13), while Xindeco [SHE: 000701] ended up 3.8 percent at CNY6.5 (USD1).

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