(Yicai Global) April 6 -- The actual controllers of some Chinese companies have used divorce settlements as a way to sidestep tough restrictions on stake sales and cash out when the firm’s stock price is high, according to an institutional investor. These separations are colloquially known as “sky-high divorces,” in reference to the stock’s high value.

Divorce has been regarded as an important method of cashing out in recent years, the person told Yicai Global. If a controller’s spouse is not a director, supervisor, or executive at the listed company, they are subject to fewer restrictions when seeking to pare down their equity in the business.

Based on incomplete figures, Yicai Global calculated that more than 10 publicly traded Chinese companies, including 360 Security Technology, Tony Electronics, and Kangtai Biological Products, have been involved in “sky-high divorces.”

360 Security Technology is the latest to come to the market’s attention. Its founder and chairman will transfer part of his stake in the cybersecurity behemoth to his wife as part of their divorce settlement, the Beijing-based company said on April 4. Zhou Hongyi plans to hand 446 million shares, equal to nearly 6.3 percent of 360 Security’s total, to Hu Huan.

The stock Hu will receive is worth about CNY8.6 billion (USD1.2 billion), based on 360 Security’s [SHA: 601360] closing price of CNY18.97 (USD2.76) a share today. Despite falling 5.5 percent today, the shares have almost tripled in value since the start of the year, and hit a three-year high on April 4, thanks to the firm's development of a ChatGPT-like bot.

To avoid fluctuations and ensure a relatively stable stock price, 360 Security said in the statement that Zhou will not alter his holding in the company in the upcoming 12 months, and Hu will not cut her equity in the next six months or increase it in the next 12 months.

In May 2020, Kangtai Biological said Chairman Du Weimin gave his former wife about 161 million shares, equal to 24 percent of the company's total, which were worth CNY23.5 billion (USD3.4 billion), based on the then share price . The vaccine maker’s stock price [SHE: 300601] jumped about 66 percent between January and May that year.

Du's ex-spouse, Yuan Liping, began to pare her stake in Kangtai Biological six months after the divorce through block trades, concentrated bidding, and other means, as the stock continued to surge. By November 2022, she has cashed out CNY3.5 billion.

In 2018, Kunlun Tech's controller divorced and gave his ex-wife CNY7.5 billion of shares in the Chinese internet services firm. She began selling them soon after, affecting the firm's stock price [SHE: 300418], which remained sluggish over the following year.

Editors: Liao Shumin, Futura Costaglione