The company that runs Poly Auction Beijing, now the world’s third largest auction house by turnover, has addressed the issues of non-payments, forgeries and money laundering in China—as well as its own links to the country’s military—to soothe potential investor concern.
In March, Poly Culture, the arts division of the China Poly Group Corporation, took a leaf out of Sotheby’s book and offered 33% of its shares to the public. The company—which also operates cinema and theatre businesses—raised $331m when it listed to strong demand on the Hong Kong Stock Exchange (shares were up 9% on its 6 March debut as we went to print).
The move makes it only the second major auction house to have a public listing (Sotheby’s went public on the New York Stock Exchange in 1988).
In its detailed prospectus to potential investors Poly Culture lists the health warnings of its auction operations, a legal requirement of companies raising money on the major international stock exchanges. These include the acknowledgement that “although we actively review the outstanding fees and liaise with relevant parties to speed up the collection process, there is no assurance that we could settle all the amount from relevant buyers in due course or at all”. Late payments and non-payments on loans against works that subsequently do not sell are also addressed.
High buy-in rates
The prospectus comes at the same time as Clare McAndrew, the founder of Arts Economics, released her annual data about the international art market. This finds that China was the second largest market by value worldwide again in 2013 (see below) with sales of €11.5bn. But, she says, the buy-in rates at auction were “persistently high” at 53% and that, while not unique to China, “late and non-payment by winning bidders at auction remains a persistent problem” in its art market.
Poly Culture’s prospectus also addresses other issues pertinent to the art market, particularly in China. While anti-money laundering and anti-corruption laws and regulations are in place in the country, the group had to warn that “we cannot assure you that our internal control system in relation to anti-money laundering and anti-corruption will be effective in preventing our auction operation from being exploited for money laundering or other illegal purposes”. The company also acknowledges that it is “subject to risks relating to the authentication, valuation on relevant prices and management’s determination of works which rely on the subjective judgement of our management and experts”.
Within its prospectus, six pages are dedicated to Poly Culture's relationship with its controlling shareholder, Poly Group (which owns the remaining 67% of the company). This state-owned company manages several businesses and was founded in part to sell weapons to China’s army. The prospectus emphasises that “there is a clear delineation between the business operated by Poly Group and our group [Poly Culture]”.
Not subject to sanctions
The prospectus also draws attention to Poly Technologies, now China’s biggest arms exporter and a subsidiary of Poly Group that in February 2013, together with other Chinese individuals and businesses, was subjected to US sanctions under the Iran, North Korea and Syria Nonproliferation Act. The prospectus reiterates that Poly Technologies and the Chinese government have requested that they be lifted. It acknowledges that “the sanctions imposed on Poly Technologies may have an adverse effect on our reputation”, but also stresses that they do not apply to Poly Technologies’ parent or sister companies, and that Poly Technologies has not been a shareholder in Poly Culture since June 2013.
While some commentators aired their concerns—the South China Morning Post said “Poly Culture’s army roots are not easy to cut”—others were more sanguine. Leo Lewis, the Beijing bureau chief for The Times, said that “Some of the language may seem blood-curdling, but you would probably find similar sentences in a lot of Chinese companies’ listing documents in Hong Kong.”
Rebecca Yu, a spokeswoman for Poly Culture, said that the group had no further comment to make on its parent company.