Agile Property Boss Falls into Official Custody – Developer Cancels Rights Issue

Struggling China real estate developer Agile Property took a serious tumble last week when it announced the cancellation of an upcoming rights issue and the detention of Chairman Chen Zhuolin by government authorities.

Mr Chen was said to be confined to a “designated residence” by officials in Kunming since September 30th, although in a statement to the Hong Kong Stock Exchange the company says it has not received any documentation from the government regarding the reason for, or nature of, Chen’s detainment.

Agile’s shares had been suspended from trading on the Hong Kong exchange since October 3rd.

Officials and businesspeople under investigation in China are frequently held in informal custody during investigations. As the Xi Jinping government has expanded its anti-corruption campaign this year, a number of government officials and property developers have come under scrutiny for corrupt practices in the real estate market.

The announcement seems to be a confirmation of a major reversal of fortune for once high-flying Agile, and will make it more difficult for the developer to meet its upcoming financial obligations. Agile was ranked as one of Asia’s “Fab 50” enterprises by Forbes in 2012, and just one year ago Forbes listed Chen and his family as the 125th most wealthy household in China.

Agile Reshuffles Leadership as Finances Slide

With no clear prospects for Chen’s release Agile announced that his wife, Luk Sin-fong and brother, Chan Cheuk-yin have been appointed acting co-chairmen and acting co-presidents. The company has asked to have trading in its shares resume on Monday, October 13th.

The developer’s stock had already been under considerable pressure this year with some analysts having identified Agile as among China’s most distressed real estate firms.

On September 22nd, the company had announced a $360 million rights issue aimed at shoring up its balance sheet. However, that maneuver along with other concerns about the company’s financial health had caused Agile’s stock to decline from HK$6.09 per share on September 1st to HK$4.74 per share by the end of last month. This year the developer’s shares have lost 40 percent of their value.

Agile had intended to use the proceeds of its rights issue to repay a $475 million bank loan due in December this year. On Friday, the same day that Chen’s detention and its corporate reshuffle were announced, Moody’s downgraded Agile’s corporate credit rating to Ba3 from Ba2, citing higher refinancing risks.

Agile Denies Zhou Yongkang Relationship

While Agile has confirmed Chen’s detention, on October 7th the company denied a report that fallen former Politburo member Zhou Yongkang was actually the real estate firm’s largest shareholder.

A Chinese business website had earlier contended that Zhou was Chen’s “godfather,” and that the company had bribed former Hong Kong chief executive Donald Tsang in relation to land deals. Agile dismissed the account as groundless and said that Zhou Yongkang was not a major shareholder in the listed developer.

Zhou and his alleged cronies have been linked to a number of accusations of corrupt land sales since the former top official was detained earlier this year.

Chen Latest Property Baron Taken into Custody

Chen Zhuolin’s detention appears to be part of a wave of investigations of high level real estate executives in China. With access to land often linked to government connections, a series of developers have been felled by accusations of graft and corruption related to land sales since the Xi government took power.

Wong Choihing, chairman of Hong Kong-listed logistics developer Hydoo International Holding was detained sometime in July, and Kong Jian Min, chairman of Guangzhou’s KWG Property Holdings has also been accused of graft and corruption related to land sales which benefitted his Hong Kong-listed company.

In August, China’s official media indicated that the National Audit Office, an organ of China’s State Council, was embarking on the country’s first audit of land sales. Coverage at the time indicated that the results of the report were expected to uncover corruption and to bring about the “relocation” of some officials. Results of the report were said to be expected within two months of the unofficial announcement in August.