Dear Mr. Rui Lin Wu,
This year has not been one of your best years for shareholders and because of this I am asking you to step down and support changes that should enhance the value of Qiao Xing Universal Resources, Inc. (XING) in the long run. Your leadership as CEO of this company is the reason why its market valuation is roughly 20% of book value. Over the past two years reporting has become more opaque, an attempt to buyout the minority shareholders of QXM to finance XING’s expansion failed, and questions about your integrity have risen through reports out of Hong Kong that you used Real Gold Mining Limited(HKG:0246)’s assets as collateral to finance personal loans for your own benefit.
You have successfully transformed XING from a telecommunications company into a mining resources holding company, but there is no evidence that your continued leadership at XING will enable the severe discount in market valuations of this company to diminish. You own a substantial portion of this company and I make this appeal to you expecting you to understand the desire to see XING realize a higher market valuation than it currently does. I believe this is possible, but of utmost importance right now are changes that significantly reduce the risk that decisions made at XING do not benefit shareholders.
The board of directors are compensated by director fees (page 68) and because of this, there is no incentive for them to make any decision that benefits shareholders. This is their duty, to represent the interests of XING’s shareholders. To create an incentive for them to represent these interests properly, their compensation should primarily be realized through share price appreciation. Decisions that yield higher returns and greater profits for shareholders are the only decisions that should be made by them. They are the people that are supposed to hold you as CEO accountable, and they will if they are compensated through some form of share option program. This is the most important change XING needs to make.
The next most important change for XING is for you, Mr. Wu, to voluntarily step down as CEO and enable the board of directors to hire someone else that is more capable in leading XING through its continued transformation into a growing and profitable mining resources company. You have chosen to reduce transparency through a lack of conference calls and minimal financial reporting. The attempt to buyout QXM was a failure, despite your claim on the conference call preceding the vote to approve the Scheme of Arrangement (NYSE:SOA) that you had spoken with the institutional investors and you were sure they approved of the SOA. On that same conference call you refused to answer any questions that involved supplying information that was not already provided through SEC filings. It was one of the more ridiculous conference calls I have ever been a part of. It was unprofessional and a waste of everyone’s time. Finally, this news out of Hong Kong concerning HKG:0246’s assets implies you do not respect the property rights of shareholders. You put property at risk, owned by the shareholders of HKG:0246, without their approval. It seems their management team was ignorant of your influence, based off the reports out of Hong Kong, and because of this I think your leadership at XING has to end. You, through your influence and decision making as CEO, directly represent a risk of permanent loss of shareholder capital. Shareholders of XING have no idea to what lengths you will go to enrich yourself at the expense of XING shareholders. Regardless of how honest your intentions as CEO of XING, or how profitable XING ever becomes, this unknown aspect of your character will always require a larger discount on the valuation placed on XING’s intrinsic value. The evidence is apparent with the market placing a valuation of the company at 20% of book value.
I ask you, Mr. Wu, to do the honorable thing and that which is best for all XING shareholders, including yourself. Step down as CEO and support a change in the board of directors that reassures shareholders of XING that decisions are being made for the benefit of all the owners of XING, not just one individual that goes by the name of Rui Lin Wu.
Disclosure: I am long QXM, XING.