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FEATURE
A Chinese Infrastructure Deal Sits on Shaky Ground
Yangtze River Development is relying on a $1 billion commitment from a U.S. financier with a suspect record.
By BILL ALPERT
November 19, 2016
A Yangtze River bridge in central China’s Wuhan. Photo: real444/Getty Images
Three years ago, China’s leaders unveiled plans for the New Silk Road Economic Belt, to better tie their country with Europe and Southeast Asia by rail, road, air, and river. As central China’s transport hub, the city of Wuhan will benefit from this infrastructure project. So should Yangtze River Development, a small U.S. public company that wants to develop port facilities on about 500 acres it holds near the Wuhan waterfront.
Since entering the U.S. capital markets last year by merging into a dormant public company, Yangtze has seen its stock (ticker: YERR) vault from pennies to a recent 5.85 dollars, giving the developer a 1 billion dollars valuation. For months, the company tried unsuccessfully to realize some of that valuation by registering 40 million dollars worth of shares for sale to fund its project. Then, in October, the developer announced that it had secured 1 billion dollars in financing from a U.S. conglomerate named Armada Enterprises. The capital infusion would let the Chinese firm up-list from the over-the-counter market to the Nasdaq, where it hoped to get its stock offering done.
Armada’s Website (armadagp.com) certainly looks like a billion bucks, apparently displaying the interests of Armada’s founder, George Wight Jr., 49, across real estate, oil and gas, shipbuilding, cruise liners, film, polo, and suborbital space travel. Last week, he told Barron’s that Armada aims to become a big player in global infrastructure, like Brookfield Asset Management (BAM) and Icahn Enterprises (IEP). A closer examination, however, reveals that Wight doesn’t really own interests in many of the glamorous ships and real estate properties featured on his Websites (including armadamarine.co). One of the yachts pictured, for instance, was sold for scrap this year by its owners, who say they’ve never heard of Wight. Questioned about this, Wight explained that the ships and properties on the site were those he’d “expressed interest in” or were representative of ones he hopes to own. But after our conversation, the Website closed for “maintenance.”
Wight’s Websites and track record suggest he might not be the right partner for Yangtze, and that its shares could be vulnerable to a substantial fall. Yangtze declined to answer Barron’s questions.
The financier seems to have a history of touting schemes that end in litigation. In one broken acquisition deal that’s now the subject of a suit in Chicago, docketed emails and spreadsheets from Wight promised bankers he would raise money by recovering hundreds of millions of dollars worth of sunken treasure from the Titanic and other wrecks, while also earning 200 dollars million producing concerts by artists he called Adelle [sic], Bruno Marz [sic], and Beyonce. The bankers declined Wight’s loan application to finance the deal. Wight says he has always liked the idea of floating concerts and thinks the entertainers would, too.
The Wuhan developer needs financial support. It started construction in 2009 but has completed only four buildings, according to its financial statements. It owes 25 million dollars in refunds for an office project it abandoned. A 47 million construction loan in 2014 was paid out to related parties. As of September 2016, Yangtze had negative working capital and net debts of $176 million. The company says it values its mostly undeveloped properties at $385 million based on “quoted prices for comparable real estate projects.”
YANGTZE REVERSE-MERGED last December into a U.S.-registered shell company that was itself the failed relic of a previous Chinese reverse-merger—a once popular backdoor route to the U.S. capital markets that produced disappointing results for many investors (see “Beware This Chinese Export,” Aug. 28, 2010).
As we’ve reported, the American financiers in these reverse takeovers also merit scrutiny. Yangtze’s chief representative in the U.S., James Stuart Coleman, sits on its board “because of his experience with the capital markets in the U.S.,” according to filings. His financial experience isn’t reassuring. He has sought personal bankruptcy protection twice in the past decade and is now enmeshed in the bankruptcy liquidation of a Florida drug-rehab venture he ran with actress Lindsay Lohan’s father. Asked about these incidents, he said, “No comment.”
Yangtze securities filings said it would give Wight a note convertible into 50 million shares, in exchange for $2 million and 100 million units of an Armada partnership. Since May, according to other securities filings, Wight has been trying to make the Armada partnership a publicly traded entity by reverse-merging it into a moribund penny stock called BIM Homes (BMHM).
Wight could come into 50 million shares of the Wuhan developer, even if he never comes through with the billion dollars in project financing. If that happens it wouldn’t be the first time he failed to deliver funding. In 2009, Wight defaulted in a federal civil suit by investors who alleged he’d promised them a 16-fold return on Houlihan restaurants that Wight never built. Wight’s accountant testified in the suit that Wight spent the investors’ money on his son’s college tuition. Wight claimed he was entitled to the money as his fee. He urged us not to dwell on past losses. “We are looking at the future of a really, really, great company,” he says. “These small little deals that amounted to nothing but headaches are left in the dust.”
Wight’s current lineup of promotions includes Privateer, a wreck-diving venture in which Armada Enterprises is offering memberships. Yet another Armada Website (privateeradventures.com) tells investors the venture has identified eight sunken wrecks with “$1 billion worth of estimated cargo!” On another site, one sees a Puerto Rican shipyard and a Brooklyn marina, which are owned by a Michigan developer and a Singapore public company; a cruise liner owned by a Bahamas shipping line; and several superyachts owned by shipbuilder Stabbert Maritime in Seattle.
Stabbert executive Neal Forde chuckled last week when he saw his firm’s ships on Wight’s Website. Among them is the Sahara, the ship that Stabbert sold for scrap this year; the buyer had it chopped up in a ship graveyard. “I’m very sad to hear that,” says Wight. “That was a great ship.”
Yangtze shareholders should take note.
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