Mainland Developer Announces Default on RMB 2.27B in Debt as White Knight Goes Dark

Zhonghong Holdings, the real estate developer controlled by tycoon Wang Yonghong announced last week that it had defaulted on RMB 1.1 billion ($160 million) in credit obligations in the month of July, bringing the Beijing-based company’s total past-due obligations to RMB 2.27 billion.

The debt drama only deepened later in the week when an announced bailout plan faltered, and brought low the main business of Wang Yonghong, whose privately held company, Zhonghong Zhouye last year paid $449 million to purchase a 21-percent controlling stake in Seaworld from Blackstone.

More bad news was delivered in the developer’s interim report on Wednesday when it revealed a 4625.39 percent increase in its net loss attributable to shareholders, which reached RMB 1.33 billion for the first six months of 2018. During the same period, Zhonghong’s net assets shrank by 13.6 percent from the same period last year to RMB 6.329 billion, according to the report.

Zhonghong Brings in a Disappearing Knight

With the defaults driving its share price to a four-year low, Zhonghong had announced on Monday last week that it had signed an agreement with a set of investors, including beverage maker JDB Group and Shenzhen Qianhai Yinyi Capital Management.

After the bailout announcement, the stock price for Zhonghong Holding climbed by the 10 percent daily limit on Monday afternoon.

In the bailout agreement, Shenzhen Qianhai Yinyi Capital Management founder and chief representative Huang Weiqing represented both his company and JDB Group in agreeing to invest in Zhonghong, after Huang was said to have been appointed as JDB’s CEO on August 25th.

Dongguan-based JDB is known as “China’s Coca-Cola” for its success in marketing its bottled herbal tea drink Jiaduobao and mineral water brand Kunlun Mountain. However, the refreshment giant brought an end to Zhonghong’s debt relief on Tuesday when it denied any connection with the bailout plan.

A few hours after JDB’s Tuesday statement, Zhonghong distributed a copy of an contract signed by Huang Weiqing on behalf of JDB Group and Qianhai Yinyi, explaining that the bailout agreement had been signed in Zhonghong’s meeting room in Hong Kong on Monday afternoon, and expressing disappointment at what it termed false statements by JDB.

After two days of conflicting statements, including accusations by JDB that Huang Weiqing had acted fraudulently in saying that he represented the beverage producer, Zhonghong officially informed the Shenzhen Exchange on Friday that the reconstruction plan with JDB and Qianhai Yinhai had been terminated.

2017 Expansion Followed by 2018 Debt Drama

Following the failed debt reconstruction plan, Zhonghong’s stock continued to drop, falling to RMB 0.84 per share by noon on Friday —  its lowest price since July 2009.

Zhonghong has struggled with overdue debts since early this year, with the developer having announced to the Shenzhen exchange in April that it had defaulted on more than RMB 2.3 billion overdue liabilities.

With China’s housing market slowing and key Zhonghong developments, such as its project to reclaim land for its Hainan Ruyi Island project suspended because of policy reasons, the developer in its interim report blamed government regulations and tighter policies for a steep drop in its sales, profits and revenue compared to the same period last year.

Debt Restructuring Fails

Before the bailout plan with JDB and Qianhai Yinyi ran aground last week, Zhonghong had been attempting to bring in outside investors to help resolve its debt crisis for more than two months.

On June 28th, Zhonghong Zhuoye signed an agreement with Xinjiang Jialong Tourism Development to sell the Xinjiang tourism company 26.55 percent of Zhonghong Holdings — the entire controlling stake that Zhonghong Zhuoye holds in the listed firm. However, that agreement was officially terminated last week when Zhonghong announced the bailout deal with JDB Group and Shenzhen Qianhai Yinyi Capital Management.