A dash for cash

Graft scandal embroils Tahoe


Tahoe's boss: Huang Qisen

Property developers in China have at least one strategy in common: they all want to forge good relationships with the local governments where they operate. Tahoe Group was typical in what is termed locally as guanxi management (i.e. milking connections with the powerful). Such was its focus on firming up friendships that the Fuzhou-based firm poached eight senior officials from local government roles and regulatory bodies last summer to join its real estate operation. Tahoe was building a “dream team”, the local media swooned at the time.

But the dream is turning into a nightmare as one of those new recruits has gone missing at a time when Tahoe tries to get out of deep financial trouble.

The executive in question, Yu Zhisheng, only joined the company as a vice president last May. The 45 year-old was previously a Party official working in Shenzhen’s judicial department, before quitting the role to join China Create Capital (CCC), now a disgraced asset management firm.

Soon after he joined Tahoe to head the group’s Shenzhen operation. Yu “has not been contactable” by colleagues and business partners since April 8, China Business News reported last month. Other media outlets have added to the story, reporting that Yu is implicated in a corruption scandal involving CCC and his former supervisor at the Shenzhen government.

On April 10, the Shenzhen government announced the arrest of Zhang Wei, the founder of CCC, along with 43 of his staff for “organising and taking part in gangster-related crimes” such as illegal fundraising and even kidnapping.

According to Prism, a breaking news platform run by Tencent, Yu was close to Zhang, a former PLA officer, and was placed under investigation in relation to the same case alongside Li Huanan, one of Shenzhen’s deputy Party chiefs.

Li was detained by graftbusters last October and expelled from the Party on April 10, the same day that Zhang’s crimes started to emerge, Prism reported.

A spokesman for Tahoe told journalists that Yu has taken a holiday for personal reasons, although the company said it has also confirmed with local authorities that his disappearance has nothing to do with his work with the Shenzhen-listed developer.

Investors may not be convinced, not least because Tahoe has been in the bad books with stock market regulators for other reasons. Caixin Weekly noted that Yu’s run-in with investigators came just days after Tahoe was told by the Shenzhen bourse to explain some of its stock market dealings.

The litany of negative news seems to be deterring some of the banks from doing business with the property firm, which has tipped Tahoe into a cash crunch. Property consultant CRIC ranks Tahoe as the country’s 20th largest developer by contracted sales. But its market value has fallen nearly 40% since the start of 2018 to about Rmb22 billion as of this week.

According to the South China Morning Post, Tahoe has also been trying to offload 12 developments projects over the past two years to cut debt, after paying Rmb40 billion ($5.9 billion) for the projects, with the most recent plot bought last December. Since March it has switched into selling mode, Sina Finance points out, disposing of three projects to Hong Kong-listed Shimao Group in a single week as it raced to repay a Rmb3 billion bond.

Desperate to raise cash, Tahoe has also been offering discounts of 30% or more on sales of units at three of its Beijing developments, real estate news portal Mingtiandi reported earlier this year. Last week Tahoe announced another sale to Shimao, this time of a 49% stake in a mixed-use project in Hangzhou, for Rmb928 million.

A Bloomberg poll of analysts and fund managers in January ranked Tahoe as the Chinese developer most at risk of defaulting. Some say a good indicator of how urgently it needs cash will become evident from its readiness to offload its best assets.

In this respect one of its crown jewels is its Hong Kong insurance arm, which it acquired from the Dah Sing Financial for HK$10.6 billion ($1.38 billion) back in 2017. If Tahoe wants to sell, there should be no shortage of buyers given Chinese investors’ immense interest in Hong Kong’s insurance business (see WiC436.

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