Fuzhou Developer Taihe Denies Reports of Mass Layoffs Amid Credit Crisis

The Taihe Group (泰禾集团) is firing much of its staff in Beijing, Shanghai, Fuzhou and Wuhan, according to a report in the South China Morning Post on 31 July citing ifeng.com. If confirmed, the mass layoffs at the Shenzhen-listed developer would be the latest sign of serious trouble in China’s property sector.

Just three months ago, Fuzhou-based Taihe announced the formation of a RMB 20 billion ($3.1 billion) real estate acquisition fund. Company chairman Huang Qisen vowed in late 2017 to double contracted sales from RMB 100 billion in 2017 to RMB 200 billion this year.

In the local press, Taihe denied rumours of mass layoffs. It said that it was only engaged in a turnover of talent, bringing in more qualified people and getting rid of those who do not meet the company’s standards. The SCMP reports that staff cuts of 30 percent have been mentioned, with some employees claiming that the firings may actually total 80 percent of staff.

Senior Executives Scramble to the Exits

Taihe, also known as the Tahoe Group, was founded in 1994 and listed in 2010. It is primarily involved in residential development and had 14 million square metres of saleable gross floor area at the end of last year. The company attracted global attention half a dozen years ago when it began marketing $47 million villas in Beijing – then China’s priciest new homes.

In addition to the rumoured mass layoffs, other signs of trouble are evident at Taihe. So far in 2018, the company has lost many top executives, including a financial director, a Shanghai deputy manager and a group vice president. In July, Shen Linan, deputy general manager of the company in charge of its culture and cinema division, left Taihe after a decade of employment. The company’s securities affairs representative, Huang Hanjie, resigned the same month after six years at Taihe.

In another possibly ominous sign, the company’s employee stock ownership plan does not own any Taihe shares despite having the right to purchase up to RMB 500 million worth of stock. The company appears to be missing its targets as well. Its contracted sales in the first half of 2018 were reported at RMB 65.5 billion, well short of the RMB 200 billion full-year goal.

Near-Term Liabilities Nearly 3x Cash Reserves

The stock of the RMB 21 billion market capitalisation company has been declining steadily. After hitting an all-time high of RMB 43.69 billion in January 2018, it has since lost 60 percent of its value.

In May 2018, Moody’s downgraded Taihe from B1 to B2. The ratings agency said that the company was highly leveraged and under stress to due rapid expansion and tight onshore credit conditions. Moody’s was particularly concerned about Taihe’s high level of short term borrowings — at RMB 43 billion — and relatively low cash reserves — RMB 16.6 billion.

“The ratings downgrade reflects our expectation that Tahoe’s ability to deleverage over the next 12 to 18 months is slower than we had expected,” says Franco Leung, a senior vice president at Moody’s.

Tighter Credit Begins Troubling Developers

Potential trouble at the company comes at a time when many Chinese developers are struggling. The government is working to control the market through cooling measures such as sales restrictions, taxes and higher down payments, and this is taking its toll on the property sector.

In the spring of 2018, Beijing’s Zhonghong Holding defaulted on RMB 1.1 billion of debts, and by July the arrears had reached RMB 4.37 billion. The Shenzhen-listed company has been working to sell assets, such as its ownership in Ruyi Island, Hainan, in order to pay down its obligations. Hong Kong-listed, Wuxi-based Wuzhou International Holdings has lost 97 percent of its value since hitting its peak in 2014, was downgraded by Moody’s in July and is in default.

Developer Sets Up Mandatory Testing for Staff

The Post article talks of a bizarre test-taking regimen at Taihe designed to force employees to sit repeated exams until they fail. It quoted sources detailing poor corporate governance and favouritism for old guard executives. But by the end of trading today, the company’s stock ended up 0.28 percent and Taihe had made no official announcement via the Shenzhen stock exchange.

On the ground, Tianhe appears to be a going concern. About an hour from Xiamen at its Taihe Mingsheng·Xiamen project, the largest in the group, the sales office was busy over the weekend, according to a report on Sohu. Taihe has been building its offering in the area since 2017, first through the acquisition of a development company and then by buying up plots of land. The theme is tourism real estate, and sales are expected to start in August.