Michelangelo deal is work of abstract art

Yulong Eco-Materials

23/11/2018 07:45

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Sharon Lam
    HONG KONG, Nov 23 (Reuters Breakingviews) - A Chinese
company is looking beyond trash for treasure. Nasdaq-listed
Yulong Eco-Materials  YECO.O , which recycles bricks and
concrete, has decided to become an art investor instead. It just
acquired Michelangelo's "Crucifixion" for $75 million after
restructuring its business model last month by offloading the
waste hauling operation to some of its directors and issuing
stock to buy a rare sapphire. It’s a risky form of creative
destruction. 
    Silicon Valley outfits are renowned for changing strategic
direction in so-called pivots. Instant-messaging system Slack,
for example, started as a video-game venture. The trend has
spread as a range of Canadian companies in other lines of
business have tried to cash in on the country’s legalisation of
cannabis. Cryptocurrency technology also has inspired many
unusual attempts at diversification. 
    The makeover at Yulong Eco-Materials also puts it among a
small group trying to bring art ownership to the masses.
Artemundi Global Fund and Liquid Rarity Exchange both do
something similar. After buying the 61,500-carat Millennium
Sapphire from serial Hong Kong entrepreneur Daniel Mckinney for
$50 million in stock, it appointed him chairman and renamed the
company. A month later, it is issuing more shares to purchase
the Italian master’s painting. 
    Mckinney’s resume, according to documents filed with
regulators, includes starting gem-cutting, trade-show,
construction and investment banking businesses after he studied
chemistry and biology for a couple years at Houston Baptist
University. He now reckons he can turn illiquid, hard-to-value
assets without any cashflow into an investment. The plan is to
take the sapphire on tour, feature it in films and use it in
videogames. Maybe there’s some money to be made, but insurance
and storage costs are expensive, too. Long holding times are
also generally required for art.
    Clever attempts at securitisation have been tried – and
failed – before in everything from music to sports. Fantex, for
example, created a market to buy and sell shares linked to
professional athletes, but ultimately shut down. The sapphire
deal sent Yulong Eco-Systems shares soaring from about $1.50 to
nearly $12 apiece, before they dipped back to $5. The
Michelangelo gave them another bounce. Ultimately, though, this
business plan could wind up more of an abstract mess than a
masterpiece. 
    Full view will be published shortly.
    On Twitter https://twitter.com/sharonlamhk
    
    CONTEXT NEWS
    - Yulong Eco-Materials said on Nov. 19 it had agreed to buy
Michelangelo's “Crucifixion” for $75 million as part of a new
business plan to invest in art and jewelry, adding that it would
issue 7.5 million restricted shares valued at $10 apiece to pay
for the painting. 
    - The company said on Oct. 17 that it had bought a
61,500-carat sapphire for $50 million. In separate documents
submitted to U.S. securities regulators, it said it was selling
its main Chinese waste management and building materials
business to directors of the company for $15 million. 
    - It funded the sapphire purchase by issuing 25 million
restricted shares at $2 each. It plans to take the gem, the
so-called Millennium Sapphire, on a tour of museums and feature
it in films. 
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SEC filing    https://www.sec.gov/Archives/edgar/data/1607741/000121390018014760/f6k103018a1_yulongeco.htm
Purchase and sale agreement    https://www.sec.gov/Archives/edgar/data/1607741/000121390018014879/f6k110518ex99-2_yulongeco.htm
FT story    https://www.ft.com/content/775f735e-ee42-11e8-89c8-d36339d835c0
BREAKINGVIEWS – Beijing’s art auctioneers aim at Western duopoly
    urn:newsml:reuters.com:*:nL3N1WW15A
BREAKINGVIEWS— China’s business culture sabotages its art
culture     urn:newsml:reuters.com:*:nL3N1RB1GC
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jeffrey Goldfarb and Katrina Hamlin)
 ((sharon.lam@thomsonreuters.com; Reuters Messaging:
sharon.lam.thomsonreuters.com@reuters.net))