Xinyuan Property Services Unit Probes Loans After Founders’ Departure From Board

Hong Kong-listed Xinyuan Property Management Service has opened an investigation into RMB 402 million ($56.8 million) in loans that its parent group obtained by pledging bank deposits held by the services unit.

While conducting its year-end asset checking and budgeting process, the unit found that certain time deposits of one of its subsidiaries had been pledged as collateral to secure loan facilities for a subsidiary of Xinyuan Real Estate, the unit’s New York-listed controlling shareholder, and other companies that are not part of the group, according to an announcement filed Tuesday night with the Hong Kong stock exchange.

“The company and its board of directors treat this matter extremely seriously, and have taken urgent steps to obtain further information about the pledges, which were made without the knowledge or consent of any member of the current board or the senior management of the company,” said the services unit’s chairman, executive director and CEO, Shen Yuan-ching.

The revelations follow a recent house-cleaning that saw Xinyuan Real Estate’s founders, husband-and-wife team Zhang Yong and Yang Yuyan, resign from the services unit’s board. Zhang continues to serve as CEO, chairman and executive director of Xinyuan Real Estate, while Yang is also an executive director with the company.

Fast-Nearing Due Dates

The pledge agreements include a RMB 172.80 million deposit put up as security for a loan maturing on Thursday of this week and a RMB 94.53 million deposit in support of a loan coming due on 23 November.

Xinyuan Property Management Service said Tuesday that the relevant loans were unlikely to be repaid by their maturity dates.

Two other deposits, in the amounts of RMB 73.17 million and RMB 61.88 million, were pledged in support of loans maturing on 8 January 2023 and 24 February 2023, respectively.

The board is assessing the potential impact and consulting with legal advisors to consider further action to protect the interests of Xinyuan Property Management Service and its shareholders. Investors have been advised to exercise caution when dealing in the services unit’s shares, which were suspended from trading on Wednesday morning until further notice.

Timely Exit

As recently as April of this year, Zhang and Yang were listed as non-executive directors of Xinyuan Property Management Service’s board, with Zhang serving as chairman.

On 7 September, however, executive director Feng Bo announced that Zhang had resigned as non-executive director on 29 August and ceased to be the authorised representative of the services unit.

The board confirmed on 19 September that independent non-executive director Shen Yuan-ching had been re-designated as chairman, executive director and CEO of the company with immediate effect.

In its interim report issued in September, Xinyuan Property Management Service said revenue for the first half of 2022 rose by 5.6 percent year-on-year to RMB 356.3 million, with net profit for the six-month period climbing 1.4 percent year-on-year to RMB 65.3 million.