Warhol’s Electric Chair Entangled in China Private Equity Fight
(Bloomberg) -- Andy Warhol’s “Little Electric Chair” is among artwork that’s at the heart of a fight between a private equity giant and a one-time Chinese restaurant tycoon.
The $10.5 million piece from Warhol’s 1960s “Death and Disaster” series on the underbelly of American consumerism and an $18.6 million untitled painting by Martin Kippenberger from 1988 are on a list of assets CVC Capital Partners hopes to seize from Zhang Lan as compensation for a failed investment in her restaurant chain, South Beauty.
The private equity firm is working to secure its Chinese arbitration tribunal victory by chasing assets it says belong to South Beauty’s 60-something founder Zhang, a one-time Forbes Rich List member who’s appealing the award. CVC entered into a $290 million investment agreement with South Beauty in 2013, but almost as soon as the ink dried on the accord revenues plummeted at the chain. An investigation by Washington, D.C.-based advisory firm FTI Consulting Inc later found “pervasive manipulation” of sales data, according to documents filed this month in a New York court.
CVC’s struggle to get its money back is yet another cautionary tale for foreign investors in China, joining cases such as Caterpillar Inc.’s writedown in 2013 on its acquisition of a Chinese mine-equipment company to last year’s implosion of Luckin Coffee Inc. that embroiled the likes of Singapore’s GIC Pte and Credit Suisse Group AG before the coffee chain filed for bankruptcy amid fraud accusations.
The CVC case also highlights difficulties foreign investors face in chasing debts in China. Court documents indicate that CVC focused efforts on tracing Zhang’s offshore holdings, including her private bank accounts, and didn’t bother or wasn’t successful in uncovering any China-based assets Zhang may hold.
CVC declined to comment as did a U.S.-based lawyer for Zhang.
The investment was a large one for the $3.5 billion CVC Capital Partners Asia Pacific IV LP fund, which bought an 83% stake in South Beauty Investment Co. Ltd. from Zhang in late 2013.
South Beauty seemed to have had an interesting story to tell. It was a food-service partner of Chinese cuisine for the Beijing Olympics in 2008. Its flagship restaurant in Beijing with its cut chandeliers and crystal trimmings had been designed by French architect Philippe Starck. Zhang herself had boasted in a 2013 interview published in China.org.cn of her ambitions of catapulting her chain of spicy Sichuan-style restaurants into “the Louis Vuitton” of fine dining.
But within a year of CVC’s investment, the relationship soured. In 2015, a Hong Kong court granted the Luxembourg-based private equity firm’s application to freeze Zhang’s private property.
CVC exited South Beauty in 2017, taking a massive hit by selling its stake for just $10 million, court documents showed. Since then a lengthy legal battle has ensued. In 2019, the China International Economic Trade Arbitration Commission awarded the private equity firm’s investment vehicle for South Beauty more than $142 million. The same year, a related effort in Hong Kong saw a judge sentence Zhang in her absence to jail for contempt of court after the businesswoman failed to comply with a court order to reveal her assets.
Zhang, who has a Beijing address and holds a St. Kitts and Nevis passport, according to court documents, has yet to surrender to Hong Kong authorities.
And now the battle has moved to New York.
The two artworks CVC is after are held in storage by Christie’s in New York. Lawyers for CVC want a New York judge to rule on who can take possession of the assets, arguing that Zhang has a history of hiding her wealth and may sell the paintings ahead of the tribunal appeal verdict.
Any seizure has been complicated by the art pieces’ ownership being in the name of a Seychelles-registered company owned by Zhang’s son, a structure CVC lawyers argued was “used to hide her ownership.” The PE firm is also after a Manhattan condominium apartment it says belong to Zhang.
The apartment and two artworks were bought soon after the South Beauty stake sale to CVC, and Zhang may have as many as 400 pieces of art held in storage, according to a media interview she gave, which was submitted as evidence. CVC said in its claim that it wants to take possession of all art held at Christie’s on Zhang’s behalf, just in case the Warhol and Kippenberger are not the only ones.
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