(Yicai Global) March 25 -- Chinese second hand car dealership Kaixin Auto Holdings is fighting off allegations that its used vehicle sales network in China is bogus and that it has forged its auto inventories as well as sales contracts, financial media outlet Securities Times reported today.
Beijing-based Kaixin Auto is accused of setting up 14 fake joint ventures between May 2017 and March 2018 to extend its second-hand car sales network nationwide, the report said.
One such JV in Zhengzhou, central Henan province was formed through a partnership with the owner of a used car trading firm called Yu Hengyuan. Yu said Kaixin Auto asked him to shut down his existing company and set up a new one, in which Kaixin Auto would take a 70 percent stake and the firm would become part of Kaixin Auto’s nationwide network. In return, Kaixin Auto would reimburse Yu in the form of stocks once it went public in New York, the report said.
However, the registered capital that Kaixin Auto injected into the new company was withdrawn the same day. As a result, Yu did not transfer all his assets from the original company to the new one, leaving it an empty shell.
Minority shareholders in similar JVs in Henan, Jilin, Shanxi, Liaoning, Sichuan and Hebei provinces and the Ningxia Hui Autonomous Region all received indictments for various reasons from Kaixin Auto’s unit Shanghai Jieying Automobile Sales, and they have all countersued, asking that the JVs be dissolved.
Several of these local partners have also accused Kaixin Auto of falsifying vehicle inventories and sales contracts with these JVs, the report said.
Kaixin Auto did admit in its 2019 annual report that it was in negotiations with dealers and minority shareholders and would start legal proceedings if they failed to reach an agreement. It also said last August that it was facing severe challenges in its used car business and that its revenue would be affected. In the first half last year, the firm only logged USD33 million in revenue, a tenth of its earnings in 2019.
The company’s share price [NASDAQ:KXIN] closed down 8.68 percent at USD3.05 yesterday. Its stock has lost 70 percent of its value since its peak in April 2019. Social networking platform Renren holds 79 percent of Kaixin Auto equity.
Editor: Kim Taylor