China Fortune Land Development’s disclosure on Thursday that it had entrusted $313 million in late 2018 to a wealth management firm controlled by a convicted swindler adds another chapter to the drama of one of the mainland’s most troubled real estate developers.
Shanghai-listed CFLD said in a stock exchange filing that it gave the money to Shenzhen-based China Create Capital from August through December 2018, in expectation of earning a 7 to 10 percent annual return on investment through the end of 2022, but is currently unable to contact the company.
The controller of China Create Capital, former PLA soldier Zhang Wei, first had his movements restricted by mainland security officials in September 2018, according to a post at the time by his wife, before being arrested on charges of operating a black market lending empire in Shenzhen in April 2019.
CFLD, which in November disclosed $1.2 billion in fresh defaults to bring its delinquent debts to $14.7 billion, said it had recently submitted a police report notifying mainland authorities of its “inability to contact” China Create and was currently unable to judge the impact of the case on the company’s current or future profits.
On 31 May this year Zhang Wei was sentenced to life in prison on 11 charges, including leading a triad organisation, illegal fund raising, fraud and bribery, with the activities of China Create Capital central to those crimes, according to local press reports. Zhang Wei also was forced to forfeit all assets as part of the judgement. Fortune Land CFLD said that the company has been listing the $313 million paid to China Create Capital among its non-current financial assets, and has yet to write down a loss on the investment.
Out of Touch
“In the future, the company will actively cooperate with the investigation work of the public security to safeguard the interests of the company and all shareholders in accordance with the law, and will strictly comply with relevant laws, regulations and regulatory documents and comply with the information disclosure obligations in a timely manner,” Beijing-based CFLD said. “Investors are kindly requested to pay attention to investment risks.”
No explanation was provided for the company’s delay in reporting its connection to Zhang Wei and China Create Capital, with the scandal having been the subject of national press coverage in China as Zhang’s case proceeded from his detention in March 2019, through a formal arraignment in September 2020, and a trial which began in February of this year.
In March of of 2019, Fuzhou-based developer Tahoe Group said that its head of Shenzhen and Guangzhou, Yu Zhisheng, who joined the company from China Create Capital a year earlier, had been “uncontactable” as Shenzhen authorities investigated his former employer.
On 29 November, Shenzhen-listed Suzhou Hesheng Special Material Co Ltd, which is controlled by Zhangwei said that the convicted felon’s 31.34 percent stake had been frozen by the courts.
Creative Capital Raising
China Create was headed by Zhang Wei, a former PLA officer who stood accused, along with his employees and partners, of using blackmail, harassment and illegal firearms to help boost the returns on his private equity firm’s investments, according to a government notice.
Zhang, who also served as a Shenzhen delegate to China’s National People’s Congress and as deputy chairman of Shenzhen’s chamber of commerce, was said to own stakes in as many as 111 listed and unlisted companies in mainland China, business data provider Tianyancha reported. In September 2020 he was convicted of crimes related to his underworld ties.
China Create had emerged from obscurity in early 2018 when it bought a 22-storey Hong Kong office building from Henderson Land for HK$9.95 billion ($1.27 billion). As of early 2019, the firm owned stakes in at least 10 Hong Kong-listed companies valued at a combined HK$346.8 million ($44 million), according to annual reports and exchange filings reported by Bloomberg.
Hits Keep Coming
For Ping An Insurance-controlled CFLD, the disclosure of the China Create fiasco continues a miserable 2021 for the former top 10 mainland developer, which is undergoing a debt restructuring guided by provincial and municipal governments.
In November, CFLD revealed RMB 7.9 billion ($1.2 billion) in fresh defaults, putting it in arrears to the tune of nearly RMB 94 billion in principal and interest on bonds, bank loans and other borrowings.
That news came less than eight months after CFLD declared a $1.3 billion default on various debt instruments. Just a month before that, the developer had announced $813 million in missed payments after becoming the first major developer to trip over the Chinese government’s “three red lines” for financial discipline.
CFLD chairman Wang Wengxue appears to be taking his firm’s woes in stride while finding avenues for his spare cash. US media reported in November that a private company controlled by Wang had purchased a shopping mall in Florida’s Orlando area for $14.3 million.