The reputation of Taiwan’s gaming industry has hit bottom this year due to a single financial scam by the public gaming company XPEC Entertainment.
On May 31, 2016, Japanese firm Bai Chi Gan Tou Digital Entertainment announced it would take a 25.2% stake in XPEC for NT$128/share in a deal valued at NT$4.86 billion. One year before the buyout, Bai Chi made a large investment in XPEC and became its largest shareholder with a 5.4% stake.
XPEC’s stock went up by 9% to NT$115.5/share right after the announcement.
On August 22nd, Bai Chi said that the acquisition payment, which was due on the 19th, would be delayed until the 31st. On August 30th, Bai Chi released a statement saying that the company decided to cancel the acquisition. The next day, XPEC’s stock tumbled to NT$70.2/share. The ending of the agreement immediately raised questions as to the reasons behind the decision.
Bai Chi registered as a foreign digital entertainment company in Taiwan in 2014, with capital of NT$50 million. The company’s CEO changed from Wen-Hong Huang to Kashino Yoshiaki the day before the acquisition was announced.
However, no information on Bai Chi has turned up, and Yoshiaki left Taiwan in June without a trace. According to an investigation by the Taipei Prosecutor’s office, Bai Chi is only a paper company.
Approval of the acquisition without inquiring about the company’s background, which led to the scam, indicated an obvious failure by Taiwan’s Investment Commission.
At the same time, the XPEC Chairman Aaron Hsu and other company board members were investigated for allowing Bai Chi, with capital of only NT$50 million, to purchase their company, which has capital of almost NT$5 billion. Hsu was subsequently taken into custody.
XPEC has been actively raising money over the past few years, according to Wealth Magazine. Over the last three years, the company has conducted five capital increases and issued six tranches of convertible bonds in Taiwan. In total they raised over NT$8 billion.
The company’s recent financial report indicates it has total assets of NT$14.4 billion and net worth of NT$4.8 billion. Its assets include NT$4.7 billion in intangible assets in the form of stakes in two subsidiaries: Tiny Piece and Xiamen Tongbu.
XPEC acquired Tiny Piece for NT$2.93 billion in September 2014. The following month it purchased Xiamen Tongbu for NT$5.29 billion. However, questions have arisen as to the appropriateness of the acquisition amounts.
Tiny Piece’s traffic ranked near 688,000th according to Chinese gaming website Alexa.com. And data from the Fujian Provincial Administration for Industry and Commerce indicates that the registered capital of Xiamen Tongbu was only around NT$14 million.
Internet site BuzzOrange has said that the approach was aimed at bringing and keeping money in China while leaving the debts in XPEC.
The damage has not yet been repaired, and the case is still on trial. XPEC could not publish a financial report for 3Q16, and the company’s stock has been suspended from trading.
The case has pushed the Legislative Yuan to publish a new regulation stipulating that business acquirers must show financial statements supporting their ability to make the bid.
Another well-known Taiwanese gaming company, Gamania Digital Entertainment, is a current business partner of XPEC. Gamania has said it plans to continue the cooperation arrangement between the two companies.
“The employees are innocent in this case,” said Gamania Chairman Bo-Yuan Liu. He added that XPEC has a great team and the staff are still able to perform well on international projects. He believes the company will be able to get back on track once the current crisis is over.
Founded in 2000, XPEC went public in 2012. The company has launched console games like KongFu Panda and Shrek, mobile games such as The Lost Kids, as well as PlayStation virtual reality games. In addition, the company provides services such as game development, art production and licensing.