The fall of Narcissus

It seems the delisting of Narcissus has been long overdue.

It brought back some interesting memories when I read that Shanghai Narcissus was to be the first A-share company to get delisted. That’s because I can remember visiting Narcissus back in 1999.

I was travelling through China with then-fund manager Richard Tsiang [now CFO of Yahoo! Asia] and it was the last of 20 or so companies we came across. We had been mostly looking at state-owned enterprises in Sichuan Province, but the final leg of our three-week journey brought us to Shanghai.

A broker friend of Tsiang’s at Jardine Fleming had arranged the meetings. “I never thought I'd walk through these gates again,” said Tsiang at the time. “This company is amazing.” But not, as it turns out, for the right reasons. “This is the worst listed company I've ever visited.”

We met Shi Zheng-ming, the extremely frank vice-director of the board. He told us that Narcissus had lost Rmb60 million ($7.25 million) in 1997 and Rmb50 million in 1998 and those were according to China GAAP numbers. Its total debt was Rmb306 million and its total triangular debt was Rmb360 million. The company had an inventory of 130,000 washing machines, its sole product. "The unsuccessful performance of Narcissus," Shi told us, "is largely due to the unsuccessful joint venture with Whirlpool [of the US]."

This was an understatement. The joint venture had by then accumulated losses of Rmb200 million, wiping out half of Narcissus's equity. It turned out that Whirlpool washing machines didn't fare well in competition against cheaper Japanese washing machines. It didn't help that the capacity of the washing machine industry was twice local demand – a familiar story throughout China for many products.

I found the story all the more amazing because the company was the biggest maker of washing machines in the 1980s when it was a pure SOE. The research analyst taking us round told me that Shanghai's then mayor, Xu Kuangdi, frequently asked multinationals to take it over but without success. Why? Even if it got new cash it was forbidden from making fully automatic washing machines under the terms of the agreement with Whirlpool. And no one wants semi-automatic washing machines – not even in China.

Even I knew this company was a total basket case when I heard that even the Chinese banks – no strangers to bad debts – were panicking. Shi candidly informed us that ICBC was requesting the company to mortgage its assets. And what were they? It had one square kilometre of land in Pudong. When we asked how much this was worth he replied brilliantly with the remark, “It's hard to say.”

As we left the meeting to go to the airport it was pouring with rain. The road was blocked. We were stuck in a terrible traffic jam. Our driver told us that the road was on Narcissus’s land.
Our driver added helpfully that the reason for the traffic hold-up was that Narcissus couldn’t afford to repair the road.

So if you were to ask if I was surprised to see that Narcissus had been delisted yesterday, the answer is not at all. It is a positive sign that the regulator has taken this action. But given what I saw in January 1999, it has been a long time in coming!

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