Modern Land Chairman Resigns, Becoming Latest Chinese Boss to Step Back

A Beijing developer’s founding chairman has resigned from all duties with the company according to an announcement Wednesday by the Hong Kong-listed developer in the latest example of a troubled entrepreneur stepping back from corporate leadership in China,

Zhang Lei will cease to serve as Modern Land’s chairman, and will be replaced by the company’s president and executive director Zhang Peng (no relation), said the Beijing-based developer without giving a reason for the change. The 60-year-old self-made billionaire is giving up his role as his company continues to face a sector-wide credit crunch after becoming a charter member of China’s defaulting developer club with a $250 million bond flop last October.

“Mr. Zhang Lei has confirmed that he has no disagreement with the board and there are no circumstances relating to his cessation as the chairman which need to be brought to the attention of The Stock Exchange of Hong Kong Limited and the shareholders of the company,” said the developer, which has fallen from a 90th spot from last year to a current 196th ranking by contracted sales.

Besides the change in chairman, Modern Land said that Fan Qingguo, a former Modern Land chief financial officer, has resigned as a non-executive director and Liu Jiaping, an expert in energy-saving building design, has resigned as an independent non-executive director.

Entrepreneur in Retreat

While giving up his title as the chairman, Zhang, who has positioned Modern Land as a green building specialist, will remain to act as an executive director of the company. Shareholding disclosures with the Hong Kong bourse show his family owns a 66.1 percent stake in Modern Land and a 33.5 percent in its property management arm First Service Holding Ltd.

Local media accounts say Zhang Lei has immigrated to Canada and spends most of his time overseas. The real estate tycoon fell to a 256th ranking in 2010 on Hurun China Rich List from a 61th spot in 2003. He is absent from this year’s list released this week.

Zhang Lei’s successor Zhang Peng, first joined the group in 2001 and the journalist-turned protégé has reportedly worked his way up the ladder from a role as an editor of the company’s in-house magazine, to chief operating officer of Modern Land’s subsidiary Modern Green Development. Now also a director and president of Modern Green Development, the 47-year-old owns a 0.83 percent stake in Modern Land and a 17.9 percent stake in First Service.

In its announcement, the developer said Zhang Peng’s dual-role as both chairman and chief executive is deemed appropriate due to his leadership capabilities although the practice deviates from the stock exchange’s existing corporate governance rules.

Liquidity Crunch

Modern Land has struggled with liquidity problems after relying on high interest credit, with the company borrowing at a weighted average financing cost of 9.9 percent in 2020 compared to 5 percent to 7 percent among its peers, according a report by The Paper.

In October last year, Modern Land defaulted on a $250-million dollar bond listed in Singapore, citing “unexpected liquidity issues” arising from challenges in the macroeconomic environment, the real estate industry and the Covid-19 pandemic in its disclosure.

In January, Modern Land announced the appointment of financial advisors to devise a restructuring plan for its $1.3 billion of offshore debt, which had an average coupon rate of 11.58 percent.

In June, the company received a reprieve after getting approval of its offshore debt restructuring scheme which included buying back 1.7 percent of the debt and swapping the remaining debt with new notes with later due dates.

The company faces dollar bond maturities totaling $650 million by April 2023. Its contracted sales were down 83 percent in the first three months of this year compared with the same period of 2021, sinking to RMB 1.6 billion ($217 million). The developer has not released any operating results since April.

Trading of Modern Land’s Hong Kong-listed shares has been suspended since April as the company has not yet released its audited results for 2021.

A Tall Tree Catches the Wind

Zhang Lei’s resignation fits into a pattern of top level departures at private mainland giants in sectors ranging from tech to property. As the Chinese saying goes, “A tall tree catches the wind.” In recent months a number of mainland billionaires have appointed trusted protégés as successors, while they stay out of the crosshairs and maintain control through shareholding.

Late last month, Longfor Group Holdings’ founder Wu Yajun stepped down as chairperson and gave her role to chief executive Chen Xuping, citing age and health reasons.

In September, Chinese billionaire couple Pan Shiyi and Zhang Xin resigned as chairman and chief executive of Soho China shortly after the company’s CFO, Ni Kuiyang, came under investigation for insider trading associated with Blackstone’s abandoned buyout of the commercial developer.

Richard Liu, founder of JD.com, Zhang Yiming, founder of TikTok-owner ByteDance, Su Hua, founder of TikTok’s main rival Kuaishou, and Colin Huang, founder of popular e-commerce platform Pinduoduo, have all stepped down from leading their companies in the past 18 months.