Property

Tycoon tussle

Greentown’s former owner is in dispute with its buyer Sunac

#ÃÏΩÚÀ≥≥€ºØÕ≈∂≠ ¬≥§ÀÔ∫ͱÛ

Sun Hongbin of Sunac

It is notoriously difficult for entrepreneurs to let go of the companies they build. Take Bill Gates. He relinquished his role as Microsoft’s chief executive in 2000, giving the CEO mantle to Steve Ballmer, his best friend and right-hand man of 20 years. But Gates had trouble detaching himself from the company. So while Ballmer had the title, Gates retained much of his former power. The struggle between the two paralysed strategic decisionmaking and is said to have damaged their friendship.

“When an engineer was displeased with Ballmer, he’d go to Gates. Some Microsoft employees from that era refer to Ballmer and Gates as ‘Mom and Dad,’ and recall that no one knew which parent was in charge” is how the magazine Vanity Fair described the situation.

China’s Greentown may face a similar problem, with the former chairman trying to kick out the new owner. Six months after founder Song Weiping announced that he would sell his personal stake in the property developer to Tianjin-based Sunac for $800 million, Song says he has realised that he has “made a mistake”.

In a statement published by news website Jiemian last week, Song describes the “negative events” since Sunac chairman Sun Hongbin (whom Song at one point called “forever my brother”) took management control of Hong Kong-listed Greentown. Song says the genes of the two companies simply “don’t blend” and he was “wrong” to sell shares to Sunac.

What happened? The 21CN Business Herald says Song has had a change of heart after hearing complaints from investors and business partners about the new management.

In one project, Sun slashed prices in an effort to jumpstart sales, prompting fury from existing homeowners that he was destroying the value of their properties and cheapening the Greentown brand, which Song has spent two decades building.

While Song is known for his focus on product quality, Sun is much more profit-oriented, says the Hong Kong Economic Journal. Because of Sun’s aggressive land purchases and speedy destocking strategies, industry observers say Song is worried that Sunac is going to sacrifice Greentown’s image for higher quality for the sake of short-term profit.

“To be honest, my decision is based out of consideration for the Greentown brand and future development of the company. I hope the rest of the world will understand. It is also not easy to buy back the stake. At the moment, we haven’t made any concrete actions since we have lost all kinds of communication with Sunac. We still have to see what they think,” Song told Securities Times.

Even before the fight with Song was made public, Sunac was having trouble closing the deal. In August, Hong Kong’s securities regulator expressed concern that Song and Sun may have been “acting in concert” on the original transaction, a verdict that could mean that Sunac has to make a general offer for Greentown, which could cost as much as $2.2 billion. And since the deal never completed, Song now argues that he should be able to back out of it (he did, however, accept cash from Sunac for part of his shares).

If the acquisition collapses, neither side will be better off. Song will need to pay back Sunac, but National Business Daily reckons that he will have to pay another Rmb200 million ($33 million) on top as compensation. Sunac would in turn lose the opportunity to consolidate its market position, says Hugo Huo, an analyst at Haitong International Securities.

And if the dispute between the two drags on – as of this week, Sun says he will take legal action against Song for “commercial fraud” – it will crimp the developer’s ability to finance and launch new projects in the future.

Still, Sun should have known that it wouldn’t be easy for Song to let go of Greentown. Back in May, Sun wrote the following on his weibo, explaining why his fellow real estate tycoon was selling: “Song Weiping transferring his shares to Sunac is essentially picking a successor for the company so the Greentown brand can be carried forward. It is like a father giving away his daughter in marriage.” And, as any father would know, no man is ever good enough for his daughter…


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.