R&F Properties co-founder Zhang Zhang resigned and was involved in a bribery scandal

Interface News Reporter | Wang Yuhan

Interface News Editor |

Guangzhou real estate company R&F Real Estate will bid farewell to the "double boss" era of nearly 30 years.

On the evening of December 29, R&F Properties (02777. HK) announced that due to the need to invest more time and energy in other matters, Zhang Zhang resigned as the company's director and chief executive officer from December 29.

R&F said in the announcement that as a co-founder of the company, Zhang Li has played an important role in managing the company for nearly 30 years and has laid an important foundation for the group.

R&F Properties is one of the few companies in the real estate industry that is controlled by dual owners. In 1994, Zhang Zhang and another founder, Li Silian, co-founded the company in Guangzhou, and in 2005, it was listed on the Hong Kong Stock Exchange. R&F Properties has since developed into a comprehensive group with real estate development as its main business, as well as diversified development in the fields of hotel development, commercial operation, culture, sports and tourism.

The 70-year-old Zhang Li and 65-year-old Li Silian each hold about 28% of R&F Properties' shares, and the two have their own priorities in their day-to-day operations, with Li Silian in charge of sales and financial management, and Zhang Li in charge of investment and land acquisition, development and construction.

Over the years, Zhang Zhang and Li Silian have maintained a certain tacit understanding and balance. On the official website, in the annual report and even in the "Letter to Shareholders", the two basically appear in the form of a juxtaposition.

(Image source: R&F Group's official website Li Silian on the left, Zhang Zhang on the right)

However, this balance has begun to change subtly after tension was involved in a bribery scandal in the past year.

In December 2022, Zhang Zhang was wanted by the United States for bribery, which sparked heated discussions. According to the court list at the time, Zhang was suspected of paying for hotel accommodation and giving gifts to former San Francisco Public Works Director Mohammad Nuru while he was on vacation in China, with bribes estimated to be between $40,000 and $70,000.

The project involved in the bribery case has little to do with R&F Properties, a publicly traded company, and is the 555 Fulton project, a large-scale mixed-use residential and commercial development project developed by Z&L Properties Inc., a personal company.

But the bribery case had a considerable impact on R&F. Zhang Li has been stranded overseas for a long time, and for R&F, which had a liquidity crisis earlier, it has become more difficult to resume normal operations, and there are also problems in the disposal of overseas assets. The day-to-day operation of the "dual boss system" has also been hampered.

In July 2023, after Zhang Zhang returned to China after reaching an agreement with the prosecutor, he and Li Silian attended the opening ceremony of Guangzhou R&F Hospital at the end of July.

Now, after Zhang Li's resignation, it has also completely put an end to R&F Properties' "dual boss system".

R&F Properties has become the world's largest luxury hotel owner at a rapid stage of real estate development. In July 2017, R&F took over 77 hotels in Wanda's hands, with a total cost of 19.906 billion yuan. The deal seemed extremely cost-effective at the time, discounting nearly 7% from the price Wanda had originally planned to sell to Sunac.

But the high-value deal didn't give R&F much of a boost to its subsequent development. Since the acquisition of these hotel assets, R&F's overall hotel business has not contributed to profits, but has suffered continuous losses. In the past three years, against the backdrop of the overall downturn in real estate, these asset-heavy hotels with "short-term debt and long-term investment" have become R&F's biggest burden.

R&F Properties is also one of the earliest companies to experience liquidity pressure in this round of real estate industry regulation cycle, and has launched measures such as selling assets, equity financing, and reducing land acquisition to alleviate cash flow pressure as early as 2019.

In March 2022, R&F Properties' onshore bonds were unable to be repaid at maturity and officially defaulted on the open market, while the relevant work on debt extension began.

In July of the same year, R&F Properties completed the restructuring of senior notes totaling more than US$4.944 billion, and extended the debt as a whole to maturity in 2025, 2027 and 2028, with an extension period of 3-4 years.

In November 2022, R&F Properties announced that the overall extension of the eight domestic corporate bonds was voted by the bondholders' meeting, and the weighted average maturity of the eight corporate bonds after the extension was successfully extended from about 4 months to more than 3 years.

In this regard, R&F became the first real estate company in China to successfully roll over all of its onshore and offshore bonds, with a total debt of approximately RMB46.6 billion.

Even though R&F Properties' domestic and overseas debt restructuring progress far exceeds that of many real estate companies, R&F's current situation is still not optimistic in the context of the overall downturn in the real estate industry.

According to the semi-annual report, R&F Properties recorded a net loss of about 4.978 billion yuan in the first half of 2023, down 27.8% from 6.899 billion yuan in the same period of 2022, and a net loss attributable to the parent company of 5.109 billion yuan, down 26.2% from 6.92 billion yuan in the first half of 2022.

In terms of sales, from January to November 2023, R&F Properties achieved a total sales revenue of about 18.78 billion yuan, a year-on-year decrease of about 48.39%, and a sales area of about 1.2748 million square meters, a year-on-year decrease of about 52.74%. This scale is far from the highlight moment, and R&F Properties' annual sales reached 138.8 billion yuan in 2020.

After the debt restructuring, R&F Properties has gained some respite, but the debt crisis has not been resolved, and cash flow management is still under high pressure.

As of the end of 2022, R&F Properties' total cash, including restricted amounts, was RMB12.30 billion, a decrease of RMB8.8 billion from the same period in 2021, while its asset-liability ratio was 170.8%, an increase of 40 percentage points year-on-year, with a net gearing ratio of 170.8%, total cash (including restricted) of RMB12.3 billion, and free cash flow of only RMB2.177 billion.

Therefore, after the outbreak of the debt crisis in the past two years, R&F has not taken action to acquire land, but has focused on selling projects in exchange for cash flow.

In 2022, R&F Properties sold three of its hotels in Beijing, Fuzhou and Zhenjiang for 1.245 billion yuan. In the overseas market, R&F Properties revealed in its semi-annual report that it is also conducting due diligence related to the sale of several overseas projects with buyers, which is expected to be completed by the end of the year.

R&F Properties also said that in the coming period, it "will continue to sell non-core hotels and investment assets to generate liquidity for repayment and working capital purposes." ”