Of the 17 cases of land bought, 14 cases were "poisoned land"? Lujiazui claimed 10 billion yuan

China Housing Daily reporter Zeng Dongmei丨 reported from Guangzhou

A bold investment decision seven years ago made Shanghai Lujiazui Financial and Trade Zone Development Co., Ltd. (hereinafter referred to as "Lujiazui", 600663. SH) headache to this day.

On the evening of November 3, Lujiazui revealed in the announcement that its subsidiaries sued Jiangsu Sugang Group Co., Ltd. (hereinafter referred to as "Sugang Group"), Suzhou Institute of Environmental Sciences, Suzhou Sucheng Environmental Technology Co., Ltd., Suzhou National High-tech Industrial Development Zone Management Committee, and Suzhou Municipal Bureau of Natural Resources and Planning due to soil pollution, and recently received a written notice of acceptance of the case from the Jiangsu Provincial High People's Court.

On October 17, 2016, after more than 200 rounds of quotation competition, 95% of the equity of Suzhou Green Bank Real Estate Development Co., Ltd. (hereinafter referred to as "Suzhou Green Bank") was successfully transferred with a total amount of about 8.525 billion yuan. The bidder is a consortium formed by Shanghai Jiawan Asset Management Co., Ltd. (hereinafter referred to as "Jiawan Company"), a wholly-owned subsidiary of Lujiazui, and Huabao Trust-Anxin Investment No. 20 Accumulative Capital Trust Plan (hereinafter referred to as "Anxin Trust").

The acquisition is an important step in Lujiazui's "going global" strategy, and the company's 17 land banks with a construction area of more than 1 million square meters will greatly expand the company's development space. In 2021, Suzhou Green Bank unexpectedly discovered that some plots of the project were at serious risk of pollution, so it reported to the local government and suspended the relevant development and construction work.

According to the latest announcement, environmental surveys by Lujiazui and various parties have determined that 14 plots of land under the name of Suzhou Green Bank are polluted, and the area and degree of pollution far exceed the pollution disclosed when the land is listed for sale. Lujiazui believes that in the process of adjusting the regulations and transferring the land involved in the case, the defendants had a series of tortious acts of violating laws and regulations, committing fraud, and failing to perform their duties in accordance with the law, so they filed a claim for compensation of about 10.044 billion yuan.

On November 6, Xu Erjin, chairman of Lujiazui, told China Real Estate News at the performance briefing that the company's special working group is going all out to carry out disposal and rights protection work, and promote the relevant responsible parties to bear the responsibility for follow-up disposal.

17 cases of land were bought, 14 cases were polluted

95% of the equity of Suzhou Green Bank was listed and transferred by Suzhou Iron and Steel Group, and the company still holds 5% of the equity of Suzhou Green Bank.

Suzhou Green Bank holds the right to use 17 pieces of state-owned land located in the north of Sutong Road and the east of Sugang Road in Hushuguan Town, Suzhou High-tech Zone. The area of the right to use within the red line of the project plot is about 659,500 square meters, and the nature of the land includes residential, commercial, industrial, kindergarten, gas station, etc., with a planned total construction area of about 1,084,100 square meters, including 6 residential lands, with a planned total construction area of about 664,000 square meters. The land transfer fee for the project plot has been paid and all the "State-owned Land Use Certificates" have been obtained.

Due to the large size of the plot, convenient for contiguous development, Suzhou Green Bank 95% equity has gained the attention of many enterprises, at that time there were more than 30 intended transferees to submit the intention to transfer application materials, and finally 19 participated in the bidding, the listing price from the reserve price of 3.15 billion yuan to 6.84 billion yuan, plus the debt of 1.685 billion yuan, the total transaction amount reached 8.525 billion yuan.

In the listing documents, Sugang Group disclosed the pollution of the land, indicating that the pollution of the coking area is mainly concentrated in the local area of the No. 4 plot, and according to the remediation target value, the final determination is 0~18 meters in depth, the pollution range is 17,542 square meters, and the amount of polluted earthwork is 39,604 cubic meters. The soil and groundwater in the non-coking area are basically unpolluted and can be redeveloped.

After the equity transaction, Suzhou Green Bank carried out remediation and remediation of the pollution scope disclosed by Suzhou Iron and Steel Group. According to anecdotal sources, in 2021, in the process of land development, Suzhou Green Bank accidentally found that plots 2 and 13 of the construction of educational facilities and plots 3 and 4 that have not yet been developed have serious pollution risks, and many elements in the soil or groundwater are greatly exceeded, which does not meet the original planning land standards of these plots, with a total area of about 118,000 square meters for the four plots. Suzhou Green Bank reported the land pollution to the local government department. In April 2022, Jiangsu Province announced the "Handling of the Sixth Batch of Petition Matters Transferred to Our Province by the Second Central Ecological and Environmental Protection Supervision Group", which mentioned that the test results of a third-party testing agency showed that benzopyrene and naphthalene in the soil of many plots of the Suzhou Green Bank Project seriously exceeded the standard, which did not meet the land use standards.

In the announcement in April 2022, Lujiazui said that the company organized special forces to verify and found that in the process of adjusting the regulations and denaturation and transfer of Sudi 2008-G-6 plot, it could not be ruled out that Sugang Group and environmental testing institutions were suspected of a series of violations of laws and regulations, fraud, etc., resulting in the seriously polluted land entering the public trading market, and concealing relevant information when listing and transferring 95% of the equity of Suzhou Green Bank.

Since then, Lujiazui has updated the progress of the land pollution incident every few months, and so far 14 plots of land under the name of Suzhou Green Bank, including No. 1 to No. 13 and No. 17, have been identified as polluted. According to Xu Erjin, on August 7, 2023, Lujiazui and its wholly-owned subsidiaries Jiawan Company and Shanghai Jiaer Industrial Investment Co., Ltd., as plaintiffs, filed a civil lawsuit with the Jiangsu Provincial High People's Court for the 95% equity transaction of Suzhou Green Bank in 2016, and launched a joint infringement lawsuit against multiple parties, including Suzhou Iron and Steel Group, the environmental impact assessment agency entrusted by Suzhou Iron and Steel Group that year, and relevant government departments in Suzhou.

For more information about this case, a reporter from China Real Estate News contacted five defendants, but as of press time, the phone calls have not been answered.

The project has been suspended, and Lujiazui claimed 10 billion yuan

According to the information disclosed by the Suzhou National High-tech Industrial Development Zone Management Committee, the Suzhou Green Bank project officially started development and construction in May 2017 and is expected to mature around 2025. Among them, the commercial project started in December 2018 and was originally expected to be put into use by the end of 2021. But as the land contamination problem was exposed, the development of the project was put on hold. "At present, Suzhou Green Bank Real Estate Development Co., Ltd. has suspended relevant development, construction and sales work. Xu Erjin said.

It is understood that before the shutdown, the schools, kindergartens, commercial complexes, fitness parks and some residential buildings of the Suzhou Green Bank project have been completed and met the delivery standards. Lujiazui once revealed in the announcement that 8 plots of the developed project, of which plots 2, 8, 9 and 13 have been completed, Plot 12 is in a state of suspension, Plots 2 and 13 are educational facilities, No. 8 and No. 9 are commercial and commercial uses, and No. 12 is residential land.

Xu Erjin did not respond to the question of how much money has been invested in the project so far, but combined with Lujiazui's past announcements, it can be found that the company has invested about 2.2 billion yuan in engineering construction, and the corresponding inventory amount has reached 11.3 billion yuan.

According to an industry insider's analysis, as the main developer of the Suzhou Green Bank project, Lujiazui has the obligation to implement soil pollution risk control and restoration, and needs to bear the corresponding investigation, assessment and restoration costs.

Lujiazui also said that land pollution could cause some of the net realisable value of the Suzhou Green Bank project's inventory to be lower than its cost, or face economic losses, which in turn could adversely affect the company's profits. However, until the interim results of this year, the company has not made any provision for inventory decline in the project.

Before filing the lawsuit, Lujiazui tried other options, such as negotiating with Suzhou Iron and Steel Group to return the stake in Suzhou Green Bank, and sending a letter to the Suzhou Municipal Bureau of Natural Resources and Planning demanding the return of the polluted land and compensation for the damages. But in the end, the company's litigation request was to order Sugang Group to bear the tort liability of about 10.044 billion yuan in compensation, and the remaining four defendants to bear joint and several liability.

Lujiazui once believed that the acquisition of a large piece of land in Suzhou Green Bank could enhance the company's ability to continue operating and profitability, which was conducive to the improvement and development of competitiveness. As of the end of 2022, the company's land bank area is about 588,000 square meters, and the Suzhou area accounts for 60%. In the context of the forced shutdown of the locomotive of Suzhou Green Bank, Lujiazui launched a major asset restructuring at the end of 2022, acquiring 4 high-quality assets in Lujiazui Financial and Trade Zone and Qiantan International Business District for 13.319 billion yuan, increasing the land bank with a construction area of nearly 1 million square meters.

Xu Erjin said that in the future, he will pay close attention to the market situation in the Yangtze River Delta, choose the opportunity to participate in land auctions, continue to actively support the integrated development and construction of the Yangtze River Delta, and continue to strengthen and optimize the company's main business.

Duty Editorial Board: Su Zhiyong

Editor in charge: Li Hongmei, Wen Hongmei

Review: Dai Shichao

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