R&F Zhang Sheng, overseas robbery
June 22 is the annual Dragon Boat Festival. On this day, on the large and small rivers in Guangzhou, dragon boats jumped the waves and fought to be the first. On both sides of the river, the spectators in the stands were cheering and exciting. Guangzhou real estate bosses who are far away abroad have no chance to see this lively scene.
As one of the founders of R&F Properties, Zhang Li was arrested by the local police in London, England on November 30, 2022. The arrest was based on allegations that Zhang Li won several business contracts in California through kickbacks. After spending £15 million on bail, Zhang was locked up on the 43rd floor of a London apartment, guarded by security and monitored by CCTV.
According to media reports, after the incident, Zhang Li tried to avoid extradition to the United States by the United Kingdom. However, as recently as June 16, 2023, Bloomberg reported that Zhang Li agreed to be extradited from London to the United States. "He will face criminal charges for alleged bribery." Under these circumstances, Li Silian will take full responsibility for managing R&F.
R&F adopts a dual-giant management system. Li Silian is another founder of R&F. Inside the company, according to Cantonese custom, Zhang Li and Li Silian were called Zhang Sheng and Li Sheng, and for more than half a year after Zhang Sheng was involved in the bribery case, 66-year-old Li Sheng ran around to save R&F.
This is really a leak that coincides with overnight rain, because as early as 2021, when Zhang Li was not yet in trouble, R&F had already begun to default on its debts.
In the past two years, R&F has temporarily relieved itself through the sale of assets, property appreciation, real estate promotion, debt rollover and other means. But this does not mean that R&F has completely defused the crisis. At present, in addition to the renewed wave of bribery cases, R&F has also encountered some new troubles.
01. The tip of the iceberg
Wang Yao is a senior real estate agent in Hainan. In his opinion, as long as there are no major problems, houses in Hainan can be sold. Wang Yao's remarks have a general background, that is, since January this year, the entire Hainan, such as Haikou, Sanya, Wanning and other cities, has almost achieved a comprehensive increase. The prices of new houses and second-hand houses in Sanya have risen "five times in a row" month-on-month. Behind this is the fact that Hainan residential commercial housing is scarce and the market demand is very "rigid".
But the excitement of all this has little to do with R&F. In the context of the general rise in housing prices in Hainan, R&F's real estate prices are an outlier. "The price was quite high before, but now the real estate is much cheaper. The residences in Yue Bay sold for 12,000 yuan per square meter at their most expensive time, and now sell for 10,000 yuan per square meter. Mangrove Bay sold for 14,000 yuan per square meter at its most expensive, and now it is between 10,000 and 12,000. On June 24, Wang Yao confessed to the "city boundary".
R&F Hainan's real estate prices have fallen again and again, but sales have not risen. Wang Yao said: "I haven't sold R&F's house for a year and a half. R&F generally cannot deliver the house on time. Many of the things promised when selling the house were not fulfilled, which made us very embarrassed. ”
▲(Source/Visual China)
Wang Yao's "dare not sell R&F's house" is also because "R&F has no money, and the building is easy to stop." Some of the properties for sale have not yet been built. I'm afraid that the back will rot. Wang Yao was blunt. The real estate he mentioned included R&F in Yue Bay in Lingao and R&F Bay in Lingshui, "Both of which have been suspended for more than half a year." ”
This is just the tip of the iceberg of the current situation of R&F real estate. "R&F Guangzhou's three or four construction sites are still operating normally, such as old renovation projects, and other construction has been stopped a lot." On June 25, Liu Zhu, a former employee of R&F, told "City Boundary". This makes the owners who pay money but can't receive the house crazy, and run around for it.
The owners of Shandong Weihai R&F Starlight World have repeatedly reported the problem of this property being delayed in starting construction on social platforms such as Weihai Media Network. However, according to the reply of the Weihai Huancui District Construction Bureau, R&F Starlight World can only be revitalized if the local urban investment company acquires the equity of R&F and injects funds.
R&F's current problems boil down to a key sticking point: it is difficult to cook without rice. According to the data of the annual report, in 2021, R&F's net profit attributable to the parent was a loss of 16.47 billion yuan. In 2022, R&F continued to record a substantial loss, with a net loss attributable to the parent of RMB15.779 billion. The cumulative loss in the two years reached 32.2 billion yuan. From the current point of view, even if the domestic and foreign bonds are extended, R&F's short-term debt pressure is still not small.
According to the annual report, as of the end of 2022, R&F's total cash (including restricted cash) was only RMB12.301 billion, and the cash-to-debt ratio was only 0.24 times. In other words, R&F's monetary funds are only enough to cover about 24% of short-term liabilities. This is also under the premise that R&F has significantly reduced its debt.
One of the reasons why R&F is stretched thin is due to its sluggish sales performance. According to the announcement released by R&F on June 9, 2023, in the first five months of this year, R&F Real Estate achieved a total sales revenue of 10.56 billion yuan, a year-on-year decrease of 51.63%. Compared with the low base in the same period last year, it is down 51.6%. R&F also has no encouraging news when it comes to selling assets for money.
Zhang Feng, an executive of an asset management company who has dealt with R&F, told Shi Jie that R&F had tried to transfer the claims of Hangzhou R&F Center. "At that time, the trust of 1.5 billion yuan expired, and they wanted to find an institution to see if they could renew the loan. Hangzhou R&F Center is mortgaged to the trust, and if an institution takes over, the trust company will transfer the debt to the institution, and the creditors will change from the trust company to other institutions. ”
However, despite the good location, Hangzhou R&F Center has sold out the profitable residential part, and "the commercial part such as office buildings is poorly liquid." Large flat floors with commercial properties are not very good to sell. Therefore, many institutions weighed it up and retreated. Zhang Feng told "City Boundary" that nowadays, the M&A market is also relatively bleak.
"I heard that R&F also laid off a batch of employees in July." Liu Zhu told the "city boundary" that R&F has basically laid off employees every two or three months in the past two or three years. Layoffs were made in every department. In this regard, another former R&F employee, Li Mei, was not surprised, "Every time the market goes down, R&F will start laying off employees. ”
Liu Zhu is R&F who entered mid-2021, and in a wave of layoffs at the end of 2022, he left. "The same batch that came in with me basically left." Before Liu Zhu left, R&F's situation was: some real estate project sites, only a few project managers, the project manager is used as a construction worker.
As one of the former "Five Tigers of South China", R&F also roared in the jungle of real estate.
02. "The average hotel earns 20 million, which is not very difficult"
Li Mei entered R&F as a management trainee many years ago. At that time, R&F, "To be honest, it was quite like a state-owned enterprise, and the work intensity was not large, it was very relaxed." Li Mei told "City Boundary" that R&F school recruitment requires a famous school, and even the front desk of the company is a graduate of Sun Yat-sen University.
R&F's brightest moment was in 2007, two years after its launch, in an era of recklessness. That year, R&F relied on urban renewal projects such as Liede Village to rank among the "South China Five Tigers", ranking second only to Vanke, Greenland and Zhonghai. Generally speaking, the land bank obtained through urban renewal will have a higher profit margin, and there is enough room for profit.
"From 1993 to 2013, R&F's revenue doubled every year." Song Xiao, who has been dealing with R&F, recalled to the "city boundary". As a result, Tension has doubled its value. In February 2010, Zhang Li was selected into the Forbes Global Rich List, ranking 556th. In 2013, Zhang Li ranked fifteenth on the list of New Fortune China's richest people with 22.30 billion yuan. However, in Song Xiao's view, R&F's heyday is not long. "Since 2014, the proportion of commercial real estate has been very large, and it has obviously declined."
This is true. Since 2014, R&F has reduced the speed of land acquisition in first- and second-tier cities and focused its business on third- and fourth-tier cities. This year, R&F's operating income growth rate turned negative for the first time. In 2015, the government relaxed regulation and regulations, and the housing prices of first-tier cities soared, and R&F in third- and fourth-tier cities was heavily invested, perfectly missing the first-tier cities.
In order to catch up with its peers, in 2016, R&F began to aggressively acquire land, and its ratio of land acquisition to sales in that year rose from 9.1% in 2015 to 28.8%. At this point, "overtime has become the norm. Li Mei told "City Boundary" that she was even more so after she left R&F. Not only that, in 2017, Li Silian also negotiated a "deal of the century" with Wang Jianlin: R&F bought 77 hotels from Wanda at a six-fold discount.
▲(Source/Visual China)
This transaction gave Li Silian the title of "bargaining king". He said that the acquisition cost of each hotel is 260 million yuan, and "people who know will know that this is very cheap." Li Silian has set a medium- and long-term goal - these hotels achieve an annual profit of 1.5 billion yuan, "On average, a hotel earns 20 million yuan, which is not very difficult." ”
Li Silian was overly optimistic.
"After buying the hotel from Wanda, R&F did not adjust the company's internal resources in a timely manner, resulting in the hotel operation business occupying a lot of resources and reducing the profit space of other businesses." Song Xiao told "City Boundary". In 2018, R&F's net profit was 8.371 billion yuan, down 60.49% from 21.186 billion yuan in 2017. In stark contrast, R&F's astonishingly high net gearing ratio.
From 2017 to 2019, R&F's net gearing ratio was 169.6%, 184.1% and 198.9%, respectively. Song Xiao has always believed that if R&F sells a part of the Wanda Hotel at this time, the capital chain will not be so tense. In fact, at that time, many people wanted to buy the Wanda Hotel in the hands of R&F, but "due to some historical problems that were difficult to solve, and R&F had no intention of selling the hotel at that time." That's no end to it. Song Xiao told the "city boundary".
Li Silian was not unaware of the risks, and in July 2019 he proposed to suspend the work of acquiring land. But what Li Silian could not predict was the changes in the real estate industry and the external environment. Under the main tone of housing and not speculation in the real estate market, in August 2020, the "three red lines" were born, and R&F was all stepped on.
To this end, R&F has put many owned properties, including hotels, on the shelves since 2020. According to incomplete media statistics, R&F returned more than 21.8 billion yuan in 2021 through equity transfers, asset sales, and capital injection by major shareholders. For example, the sale of R&F Integrated Logistics Park of Guangzhou International Airport to Blackstone, and the transfer of R&F property to Country Garden Services.
However, in the face of huge debt pressure, R&F's cash flow was obviously insufficient, and in May 2022, R&F's US dollar bonds defaulted. Under the urgency of the situation, R&F put the Wanda Hotel it bought at a six-fold discount on the shelves in June of that year. According to media reports, there were about 10 projects approached at that time, with a unit price of between 200 million and 700 million yuan, and most of them were in second-, third- and fourth-tier cities.
Later, R&F sold two, one was the Wanda Realm Hotel Beijing at a loss of 6.537 million yuan, and the other was The Westin Fuzhou (formerly known as The Westin Fuzhou Wanda Hotel) for 430 million yuan. In order to get out of the predicament early, while selling assets, R&F also sought debt rollover from creditors. In order to reach an agreement with creditors as soon as possible, R&F included some overseas properties as collateral.
JPMorgan Chase played a key role in this. Over the course of 21 days, the financial mogul contacted hundreds of large investors and conducted more than 30 investor calls. The creditors saw the sincerity of JPMorgan and R&F and quickly approved the rollover plan. At this point, R&F has gained respite for about three years.
Just when everyone thought that R&F could breathe a sigh of relief, R&F's boss Zhang Li was in big trouble.
03. The balance of the dual-boss system has been broken
R&F adopts a dual-boss system that is unique among domestic real estate enterprises.
Li Silian, who graduated from the Department of Mathematics of a prestigious university and has been engaged in securities analysis, is rigorous and restrained; Born as a civil servant and a former contract foreman, he is outgoing and straightforward, "very clever and very good at being a person." Such personality differences make them each have their own division of labor. Li Silian is responsible for sales and finance, and Zhang Li is mainly responsible for preliminary work such as land purchase and construction.
The two people, who are not related by blood, jointly led R&F, which is not a family business, from a small real estate company at the beginning to a large real estate enterprise with business all over the country. Even after R&F's unprecedented crisis, the two bosses seemed to work together.
Just in the middle of 2022, Liu Zhu, who had not yet received a layoff notice, also saw Zhang Li. At that time, Zhang Li was patrolling a construction site in Guangzhou, "with bodyguards by his side." Liu Zhu recalled to the "City Boundary", "Boss Zhang is not tall or thin, but he looks very spirited. However, what Liu Zhu did not expect was that just a few months later, Zhang Li was arrested by the London police.
According to court listings at the time, Zhang Li was accused of "providing kickbacks and funds, estimated at between $40,000 and $70,000, to a U.S. official in order to obtain proper permits for a construction project." The construction project is the 555 Fulton project developed by Z&L Properties Inc.
In December 2022, after paying £15 million on bail, Zhang Li was placed under residential surveillance on the 43rd floor of the Tower Bridge apartments. It is said that after the incident, Zhang Li tried to avoid the extradition process to the United States by the United Kingdom. However, as recently as June 16, 2023, Bloomberg reported that Zhang Li agreed to be extradited from London to the United States. "He will face criminal charges for alleged bribery."
▲ (August 1, 2018, the 15th round of the Chinese Super League, Guangzhou R&F vs Beijing Ren. R&F boss Zhang Li walked into the entrance to communicate. Source/Visual China)
"Zhang Li's extradition to the United States means that Zhang Li's suspected bribery has basically been confirmed, and the result with a high probability will be investigated for criminal responsibility, and even the company will be jointly punished." However, according to the US judicial system, there is still a certain opportunity and space for reconciliation. IPG China Chief Economist Wenxi Bai told Citybound.
R&F clarified that it did not provide any guarantee funds for bail, the Company had no interest in Z&L Properties Inc. (owned by Zhang Li and its affiliates), and the case would not have any material adverse effect on the Company's business and operations.
"Although this incident is not directly related to R&F, Zhang Li's status as the actual controller and soul figure cannot be denied and ignored, and the impact of this case on R&F is self-evident in terms of market confidence, corporate image, and even the balance of power structure within the company." Bo Wenxi thought.
According to self-media "One Real Estate" reports, in order to rescue Boss Zhang, R&F quickly transferred personnel from real estate and energy lines and set up a rescue team to rush to the United States. It is said that several hotels were also sold at that time in case of emergency. Regarding when Zhang Li will be extradited to the United States and how R&F will respond to the case, "City Boundary" contacted R&F Group, but as of press time, there was no response.
From the current point of view, R&F has not come to the step of Evergrande and Sunac. The reason for this is that "R&F does not have too much industrial cross-border like Evergrande, and over-uses financial leverage." He is more caused by his own liquidity, the downturn of the industry, and the poor sales of real estate. Bai Wenxi told "City Boundary" that although the arrest of Zhang Li has an impact on R&F, due to the dual chairman system formed by R&F itself for a long time, it has greatly helped to stabilize R&F's corporate fundamentals and company operations.
"R&F's current difficulties are mainly the difficulty of debt restructuring and business recovery. At present, the trend of the industry is uncertain, and the market recovery has not met expectations. Bai Wenxi believes that R&F's future still has greater uncertainty.
Exploring the reasons why R&F has come to this point, some people attribute it to Zhang Li's "dare to take anything", some attribute it to the acquisition of 77 Wanda Hotels in 2017, and Li Silian has his own reflection and statement. In March this year, Li Silian said at the 2023 China Real Estate Summit Forum that the current corporate difficulties are mainly due to the disorderly development of too much scale in the early years.
After Zhang Li lost his personal freedom due to the suspected bribery case, which broke the balance of R&F's dual boss system, it is said that Li Silian, who is based in Hong Kong, went to Beijing and held a small closed-door meeting with a few executives to encourage everyone to overcome the difficulties together. Just as Sunac has the old people who followed all the way, R&F also has some old employees who have not left.
But Li Silian encouraged everyone to overcome the difficulties together, and some R&F employees on the back foot seemed to have a new place to go. "One Real Estate" reported that in the past period, the classic scene of R&F was that employees received a cross-ocean phone call, and then submitted their resignation from R&F while applying for onboarding on the ground. The field is the real estate company where Zhang Li's son Zhang Liang is the actual controller.
(Zhang Feng, Wang Yao, Liu Zhu, Song Xiao, and Li Mei are pseudonyms in the text.) ）
Author | Tao Ting
Edit | Sun Chunfang
Operations | Liu Shan