Background

A summary of the relationship between China Taiping and Sargon

Executive Summary

  • Sargon Capital Pty Ltd (“Sargon“) was an Australian-founded fintech company with A$56 billion in Assets Under Management (“AUM“) and A$67 million in annual recurring revenue (ARR) that failed in January 2020 due to China Taiping appointing Receivers and Managers.
  • China Taiping, a Chinese-government-controlled conglomerate listed on the HKSE with revenue of $25b p.a, invested into Sargon to help grow China Taiping’s pensions, insurance and asset management business outside of China and Hong Kong and diversify its business.
  • Over its investment period of two years, China Taiping saw Sargon grow approximately 10X and was starting to realise the strategic value in the form of growing their AUM from the Australian asset management market and laying the groundwork for its entry into the Australian group life insurance market through superannuation.
  • Changes in China Taiping staff and internal miscommunication between China Taiping departments and its Australian law firm Ashurst resulted in loss of organisational knowledge in late 2019 regarding the structure and purpose of their investment in Sargon.
  • Following several months of confusion and contradictory communications with Ashurst and China Taiping, Ashurst assisted China Taiping to appoint McGrathNicol as Receivers and Managers over Sargon and some Trimantium entities in what was described by McGrathNicol as an “information gathering exercise”, despite Sargon being in substantive compliance with its interest and other obligations to China Taiping. as well as its other creditors.
  • The appointment of Receivers and Managers destroyed Sargon’s goodwill and reputation, wiped out China Taiping’s debt and equity investments which exceeded A$103 million, destroyed tens of millions of other institutions’ and individuals’ debts as well as many times that in equity value and caused a ripple through many parts of the Australian financial services market.

The origins and structure of China Taiping’s relationship with Sargon

Sargon and China Taiping (a Chinese-government-controlled conglomerate listed on the HKSE with revenue of $25b p.a.) commenced discussions about China Taiping’s potential investment into and partnership with Sargon in late 2017, identifying numerous strategic opportunities available to both parties.

At the time of China Taiping’s investment in Sargon in early 2018, based on its financial statements, Sargon had approximately:

  • A$8m in revenue p.a.
  • A$2bn in AUM.

At the time China Taiping appointed Receivers and Managers over Sargon in Jan 2020, based on its financial statements, Sargon had approximately:

  • A$67m in revenue p.a.
  • A$56bn in AUM.
Sargon’s Revenue (A$ millions) over the Taiping investment period
Sargon’s AUM (A$ billions) over the Taiping investment period

China Taiping’s investment in Sargon was predominantly equity-exposed and accompanied by ongoing strategic cooperation initiatives in the pensions, insurance, and asset management sectors across the Asia Pacific.

In 2018, China Taiping made its initial investment in Sargon through a structure of financial instruments and indirect beneficial holdings:

  • In early 2018, China Taiping entered into a strategic partnership agreement with Sargon to facilitate its expansion into Asia-Pacific asset advisory.
  • Trimantium Taiping (HK) Trust (“TTHK Trust”), a Hong Kong trust, was established as a fund with Trimantium Limited, registered in Hong Kong, as its trustee. China Taiping’s subsidiary owned all of its investment units.
  • The TTHK Trust owned an Australian company, Trimantium Taiping Investment Management Pty Ltd (“TTIM”, now known as Trimantium Investment Management Pty Ltd).
  • TTIM established a fund, Trimantium Taiping Investment Fund 1 (“TTIF“), to which China Taiping invested HKD$500m (~A$81m) in April 2018 (an injection into its Australian-domiciled fund).
  • By 2020, approximately $60m of these funds were invested into equity holdings in Sargon. The balance of the funds were partially held as debt in Sargon and partially used to fund interest and transaction costs over the life of the facility.
  • Overall, accounting for other investments China Taiping also made in Sargon, China Taiping’s investment in Sargon was exposed approximately 90% to equity and 10% to debt.
  • China Taiping appointed an employee director to the Board of Sargon from mid-2018 to represent its interests.
  • China Taiping worked with Trimantium and Sargon to facilitate an entry into group insurance markets through Sargon’s growing market share in Australian superannuation and other APAC markets including New Zealand and Hong Kong.
InvestmentType of Holding
A$50 million (62%)Seed Preference Shares in Sargon
A$10 million (12%)Class A Preference Shares in Sargon
A$10 million (12%)Debt in Sargon
A$10 million (12%)Cumulative Interest Paid to China Taiping
A$1 million (1%)FX, Legal and Transaction Costs (Sargon paid China Taiping’s legal costs)
Total: $81 million

Sargon’s accelerating growth and the continuing China Taiping – Sargon partnership

From 2017 – 2020, Sargon executed a successful growth strategy, increasing its asset base by ~28x and resulting in revenue growth of ~740%.

China Taiping and Trimantium established an insurance market entry vehicle, Trimantium Insurance Partners Pty Ltd in May 2018. Documents prepared in relation to the venture show that it expected to have prospects for A$100m+ p.a. in premiums through its distribution channels.

Trimantium Insurance Partners appointed Ashurst in May 2018 to advise it on various regulatory matters regarding insurance market entry.

Sargon and China Taiping collaborated on Asia Pacific retirement market expansion plans, including a joint venture into a Chinese government-trialled retirement savings program that was approved by Sargon and China Taiping for public announcement just prior to Receivership appointment.

In late 2018, China Taiping underwent significant leadership and management changes which started a pattern of corporate memory loss regarding China Taiping and Sargon’s investment relationship. Notwithstanding this, China Taiping demonstrated continued commitment to the investment following a series of strategic meetings in mid-2019, with a goal of transitioning its remaining debt exposure into equity.

Outside of the investments outlined above, China Taiping held other equity positions in Sargon.

InvestmentType of Holding
A$28.5 million (85.3%)Class A Units in the Trimantium Sargon Investment Trust which held Seed Preference Shares in Sargon
A$4.9 million (14.7%)Ordinary Shares in Sargon
Total: $33.4 million

In total, by 2020, China Taiping had cumulatively invested A$93.4m directly and indirectly into Sargon’s equity capital and A$10m in Sargon’s debt.

2020 Outlook

2020 presented a robust growth outlook for Sargon. Correspondence shows that China Taiping and Sargon were finalising a further Strategic Cooperation Agreement to add new pillars to their overall partnership. Simultaneously, China Taiping appears to be have been liaising with Ashurst on appointing Receivers over Sargon.

Sargon expected an imminent financing event to be completed, with correspondence dated 9 January 2020 notifying China Taiping that it had entered into a six-week investment process with several international private equity firms and other investors for a significant raise expected to complete by 30 April 2020. In one instance, the investment committee of an institutional investor participating in that process advised Sargon that it had approved its investment subject to confirmatory due diligence in the same week as the receivership appointment by China Taiping.

Destruction of value

The course of events from:

  • the joint initiatives agreed in October and November 2019 between Sargon and China Taiping,
  • to the creditor action following Ashurst’s appointment and initial correspondence of 2 December 2019.
  • through to the appointment of McGrathNicol as receivers on 29 January 2020 nearly a full year prior to investment maturity,

warrants close scrutiny for the benefit of all creditors including staff and contractors as well as equity holders.

In the two years of China Taiping’s investment, Sargon had developed from a small early stage start-up to a sizeable and rapidly-growing market disruptor which had become the issuer of over 16% of all public superannuation products in Australia and was expanding internationally. 

China Taiping’s investment, being predominantly equity-linked, stood to have delivered a return significantly above the invested capital. The course of action advised by Ashurst to appoint receivers in the circumstances was guaranteed to deliver the least possible return to China Taiping of all available options and cause the maximum damage to Australian creditors and equity holders.