It would appear that the recipient of the largest ever IP-backed loan has come full circle to cautionary tale.
Tranlin Paper, based in China’s Shandong Province, borrowed well over a billion dollars from the China Development bank in 2014 on the strength of its IP portfolio. It planned to invest part of the sum in a US-based paper mill which promised to provide 2,000 jobs.
On the US side at least, the deal appears to have gone pear-shaped. And in China as well, serious questions are being asked about Tranlin’s financial situation.
Tranlin – also known as Quanlin, Tralin, and most recently Vastly, Inc – collateralised a portfolio of 110 patents and 34 trademarks as part of the funding agreement four years ago. The company’s core technology was a process for using straw to make paper, and using byproducts of that process to produce organic fertilizer. It was, and probably remains, China’s biggest-ever IP financing deal.
Shortly after receiving the loan, Tranlin announced plans to build a $2 billion paper mill in the state of Virginia. It was a coup for then-governor Terry McAuliffe, who labelled it the largest ever greenfield development project in the United States. The facility on the James River was supposed to become fully operational by 2020.
After a series of delays, Tranlin told local reporters in May 2017 that the project had been postponed indefinitely. The reason given was the “recent, unexpected success” of another new Tranlin factory in China. The departure of Tranlin’s US CEO and hang-ups in obtaining environmental permits were also cited. Construction on the planned 840-acre facility had not yet begun.
Tranlin executives agreed to repay the $5 million grant they had received from the State of Virginia to buy land for the plant in a town called Chesterfield. The company made an initial $150,000 payment, but an October 2017 deadline to reimburse the full sum came and went.
When Tranlin again missed instalments in December and January, the state foreclosed on the factory site, which had been purchased for $3.2 million. The state agency which made the deal with Tranlin said it had instructed Virginia’s attorney general to seek the return of the rest of the money.
Tranlin says that it has every intention of paying back the state, but has run into “short-term cash flow challenges”. The company is still operating in Virginia, re-branded as Vastly - a company which bills itself as “the world’s largest producer of plant-based fertilizer products”. Based on its website, Vastly does not appear to be in the paper production business.
In China, there also appear to be some red flags regarding Tranlin’s financial health. A report last week on the financial site Hexun stated that Tranlin is indeed facing cashflow problems and courts have frozen shares owned by key company figures. As many as 21 lawsuits have been lodged against the company since the beginning of 2018, including what Hexun calls a “loan contract dispute”.
Hexun also states that there are widespread reports of Tranlin employees who have not been receiving their wages. In response, Tranlin stated: “Due to a single corporate financing channel, the adjustment of banking financial policies, and the adverse impact of bank reluctance on loans, the company’s funds are in short supply, resulting in arrears in the company’s employees’ salaries.”
It is not clear whether any of these reported loan disputes concern IP-backed financing. But it sure seems like the China Development Bank ought to be preparing for the prospect of a Tranlin default. In that event, I’m guessing the bank would probably be able to recoup almost nothing by taking ownership of Tranlin’s 110 patents and 34 trademarks.
Though the IP environment has continued to make progress in China, when it comes to IP-backed financing not much has changed since the 2014 Tranlin deal. The government still says that huge sums are being loaned against collateralised IP assets, and outsiders still have very little idea about asset valuation or loan performance.
Tranlin could still emerge from these cash flow problems and hold on to its eco-friendly papermaking technologies; but until that happens, it looks more like a reminder not to take headline-grabbing IP finance figures from China at face value.