A Chinese Tycoon Vanishes: Wison Says It Believes Chairman’s Detention Is Related to Probe of State-Firm Officials

A Chinese Tycoon Vanishes

Wison Says It Believes Chairman’s Detention Is Related to Probe of State-Firm Officials

JAMES T. AREDDY

Jan. 10, 2014 7:50 p.m. ET

XINGHUA, China— Hua Bangsong, one of China’s richest men, controls a vast engineering-services empire, Wison Group, which develops chemical plants for the nation’s major oil companies and international giants like Germany’s BASF SE.BAS.XE +0.89% But the 48-year-old hasn’t been seen by colleagues since August, when he was detained by Chinese investigators.He is one of several moguls who have disappeared from view in recent months. Along with a roster of government officials purged on accusations of corruption, a number of business leaders from China’s property, commodity and especially petroleum industries have vanished into the custody of secretive investigators in the year since Xi Jinping became Communist Party chief and later president.

On Dec. 30, Wison for the first time provided a specific reason why Mr. Hua might be held, telling investors it believes his detention relates to a probe into “the alleged corruption cases of senior officials of state-owned entities.” Wison didn’t identify the companies, but the same month Mr. Hua’s family and company say he was taken in, government investigators also nabbed a clutch of senior executives from Chinese petroleum companies that include leading Wison customers.

Several of the petroleum-industry people and others detained had ties to Zhou Yongkang, an oilman who rose to the inner circle of the party leadership before retiring as a new generation of leaders under Mr. Xi took over in late 2012. Wison executives say their company has long been dogged by rumors that Mr. Zhou’s son has an interest in their business but that any such talk is untrue. The Zhous couldn’t be reached. Neither has been accused of wrongdoing.

Wison’s trajectory was rapid once it got under way, though there is little in Mr. Hua’s humble background to suggest he would get rich as China’s petroleum industry expanded.

After high school, Mr. Hua set up a screw-making workshop with his brother in Jiangsu province. In the 1990s, he pushed into pipe making and later into designing projects.

When they started out, Mr. Hua’s brother and initial partner in Wison says they sometimes worked free of charge to get in the door with customers. Around 2000, China’s oil majors began entrusting little-known Wison with some of their biggest jobs, according to interviews with Mr. Hua’s brother and Wison executives, customers and competitors, as well as a review of corporate documents.

Wison absorbed new technology and won increasingly complex work, sometimes overseas. Once it was established and preparing for an initial public offering, Mr. Hua, in an unusual move, gave a chunk of the operation to a former banker whose relationship to him is unclear.

“They came onto the scene fast, I’ll say that,” says Chet Nelson, regional director for Asia and Angola at Houston oil-industry engineering firm Wood Group Mustang.

Mr. Hua couldn’t be reached. Nor could investigators. Detention in China, unlike formal arrest, doesn’t necessarily indicate authorities plan to pursue charges. Wison says it has had no contact with Mr. Hua since his detention but that investigators have pored over the company’s business records.

Wison executives praise the founder. “The market opportunity allowed us to grow,” said one of Mr. Hua’s top deputies, Wison director Cui Ying. China’s “time of great transformation,” he said, minted many tycoons from modest backgrounds who, like his boss, knew how to hire smart people and set goals for them as fast as the economy was expanding.

The Wison executives said that for more than a year speculation in the industry and the Chinese blogosphere has unfairly and without evidence attributed the company’s success to political links, and specifically to Mr. Zhou’s son Zhou Bin.

Wison executives say that in June 2012, when reports on the Internet alleged links between the company and the younger Mr. Zhou, regulators and bankers requested an explanation. Wison says it denied any such links. The Zhou family hasn’t commented publicly on Wison.

“We have no business relationships with the Zhou family,” said Mr. Cui. Wison’s success, he added, doesn’t derive from political connections of any kind.

Since Mr. Hua disappeared, Wison has started to show evidence of financial hardship.

Wison executives echoed corporate statements that the company continues to win work—an expansion of a coal-to-methanol facility in west China, for one. But in November, Wison also told investors that “stabilizing” its financial situation takes priority and cut 48%, around $78 million, from its budgets for research, development and expansion in order to repay bank loans.

Back-to-back statements in late December warned investors Wison could post a “significant loss” for 2013 and might default on bank loans that total around $215 million. A year earlier, in December 2012, it celebrated raising around $195 million in an IPO.

Mr. Hua is self-taught, without a college degree. Colleagues say he excelled at winning complex engineering jobs from some of China’s largest and most technologically advanced business enterprises. Among the biggest was giant PetroChina,601857.SH -0.79% whose parent company was formerly run by the politician Mr. Zhou and one that is loaded with technical specialists among its over 500,000 employees, from the board level down to its own engineering institute.

PetroChina didn’t respond to questions about Wison.

In 2012, Wison Engineering Services Co., the group’s publicly traded subsidiary, said it drew roughly 63%, 80% and 58% of its revenue from PetroChina in the three years from 2009 to 2011. A single PetroChina unit contributed at least 29% of its $795 million in 2012 revenue.

As China became the No. 2 global consumer of oil in recent years, it spent billions of dollars erecting related infrastructure. In refining alone, according to BP Statistical Review of World Energy, China over the past decade added almost as much capacity as exists today in Russia’s total industry to almost double its global share to 12.5%, second only to the U.S.

Some who participated in this expansion benefited on a grand scale. Days after Mr. Hua was detained, his name appeared for the first time on an annual list of the richest Chinese published by Shanghai research firm Hurun Report. One of dozens of entrepreneurs with recent private oil and chemical fortunes, Mr. Hua ranked No. 335 overall, with an estimated worth of $900 million.

North of Shanghai, a stretch of pancake flat fields and picturesque ponds abruptly gives way to Dainan, a chaotic patch of factories and trading companies. A big red sign over the road calls it, “The Top Town of Stainless Steel and Production in China.” Near here is where Mr. Hua got his start, says his 59-year-old brother, Hua Bangshan, showing a porthole just outside his simple office that offers a view onto a small workshop.

He said he knows little about Wison’s present-day operations or shareholding structure. “I’m not the expert,” he said.

Corporate records released to the Journal by the Xinghua County government in Jiangsu province show how a parcel of farmland there was allocated for industrial use in 1992 to a company called Jiangsu Wison Xinhua and in 2002 became property of a company founded by the Hua brothers called Jiangsu Xinhua Chemical Engineering Co.

Today, the Xinhua business is a 25% shareholder in Wison’s main operating subsidiary, according to Wison filings made for its 2012 initial public offering in Hong Kong. To prepare for the IPO, the Hua brothers shifted full ownership of Xinhua to Han Jianyu, whom the listing prospectus identifies as the brothers’ acquaintance from childhood. That’s incorrect, the elder brother says, maintaining that Mr. Han was their banker. In response to questions about this, Wison says all of its public filings are accurate.

Wison said the ownership shifts reflected the Hua brothers’ gratitude to Mr. Han for his early assistance to the business and was also designed to ensure the key operating subsidiary remained a joint venture partly owned by a Chinese citizen. Like many wealthy Chinese, the detained Mr. Hua has a Hong Kong passport. If the operating entity were less than 25% Chinese owned, Wison would be “significantly jeopardized” in its ability to win certain contracts in China, its prospectus said.

The Xinhua business banked at Zhangguo Rural Credit Cooperative, according to corporate records. Mr. Han previously worked as chief lending officer at the cooperative, two of its managers said.

Mr. Han couldn’t be reached.

Wison’s corporate history shows it feted on China’s fast-expanding production for the hydrocarbon ethylene in part by licensing engineering technology from overseas.

A significant early job was a March 2000 renovation of an ethylene-cracking furnace in southwestern China, the history says.

In 2006, PetroChina hired Wison for a two-year, $382 million plant expansion that would give the facility 15 times the capacity of the plant Wison had worked on in 2000, according to the corporate history.

Wison obtained China’s highest certification to undertake petrochemical engineering work in 2007 when it bought a licensed, but near-bankrupt, quasi-government institute in Henan province. Such a purchase of a licensed organization isn’t uncommon in China, according to others in the industry. The institute director, Yang Zhimin, who became a Wison executive, recalled in a 2009 speech, that Wison was a godsend: “We lacked core technology. Our market competitiveness wasn’t strong.”

Later, German chemical giant BASF awarded Wison some of its most noteworthy work. In 2011, BASF hired Wison and a Korean company for a three-year, $1.2 billion project to design a plant for the inland city Chongqing that would produce the key ingredient in polyurethane.

to people involved in the project, the so-called MDI plant had taken years to win approval from Chinese regulators. The concern, according to people involved in the project: possible leaks of phosgene, a lethal gas known as COCI2, into the huge metropolis. Most MDI facilities are built on the seaside. Wison says its projects are closely scrutinized by regulators.

BASF executives say Wison is competent.

Colleagues said one of Mr. Hua’s passions was the company’s new French-designed headquarters of glass, aluminum and copper in Shanghai. Mr. Hua installed sculpture around its bright courtyard to remind Wison engineers he expects the “pursuit of perfection,” colleagues said.

In a financial statement, Wison values the five-wing property above $130 million, while it values at $30 million a nearby complex of wavy aluminum nearby that served as headquarters until June.

Wison executives said they can’t speculate when the chairman might be freed, so they are getting on with business. “It’s an organization, not a company of one,” explained Mr. Cui.