Caixin
Aug 18, 2021 08:12 PM
BUSINESS

Evergrande Founder Steps Down as Chairman of Flagship Real Estate Unit

Xu Jiayin, founder of China Evergrande Group. Photo: VCG
Xu Jiayin, founder of China Evergrande Group. Photo: VCG

The billionaire founder of troubled property development giant China Evergrande Group has stepped down as the chairman of its flagship real estate unit in the wake of an aborted backdoor listing.

Zhao Changlong, a former director of Hengda Real Estate Group took over from Hui Ka Yan as chairman on Tuesday, company information shows. Zhao also took over the general manager and legal representative roles from Ke Peng, who stepped down the same day.

A source close to the matter told Caixin that Hui remains the actual controller of Hengda and “continues to direct the daily management and decision making.”

Hui replaced Zhao as Hengda chairman in 2017 after Evergrande began its so-called backdoor listing plan, which involved injecting almost all of Hengda’s property assets into a shell company.

“If it had succeeded, Hengda would have become a publicly listed company and the board would have to be responsible to the shareholders. Therefore, Hui, the actual controller, should take the chairman seat,” said the source.

However, the backdoor listing plan collapsed in November 2020 amid increasingly strict scrutiny over the real estate industry and related financial risks.

As a result, Hui no longer needs to hold the chairman seat. This Tuesday decision is merely a normal personnel change with no impact on the management structure or the shareholding change, the source said.

Though the back-door listing plan is now behind the conglomerate, its financial troubles are not.

Hengda conducted three rounds of fundraising between 2016 and 2017, raising a total of 130 billion yuan. As part of this funding, Evergrande agreed to buy back stakes held by investors — including over 20 financial institutions, local state-owned enterprises, and several companies involved in Evergrande’s supply chain — if the backdoor listing plan wasn’t completed by Jan. 31.

The company has since been hit by a deluge of lawsuits around the country over missed payments, leading to some of its assets being frozen and China’s top court designating a single court to oversee all the cases.

The company is also under pressure to comply with the three “red lines” imposed on developers by the government to curb their debt levels. Evergrande’s borrowings totaled 835.5 billion yuan ($126.4 billion) at the end of June 2020.

On Aug. 11, the debt-laden giant disclosed to the Hong Kong exchange that it’s in talks with “several independent third-party investors” on selling assets including interests in its new-energy vehicle and property management units. No formal agreement has been reached so far.

“The function of the chairman position is determined by the company articles of association,” Wang Yue, chairman of human resources company Strong HR, told Caixin. If the next step for Hengda involves a strategic investment, then this executive change might be related to a potential equity transfer.

Hengda passed an updated edition of its articles of association on Aug. 5, but the details have not been released.

Contact reporter Manyun Zou (manyunzou@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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