Guangzhou R&F Co-Chairman Arrested on Kickback Charges in UK, Held on $18M Bail

Guangzhou R&F Properties co-chairman Zhang Li has been arrested in London on suspicion of paying kickbacks in return for permits for a development project in San Francisco.

Reuters reported Tuesday that Zhang, who co-founded and also serves as chief executive of R&F, was taken into custody by London police on 30 November after a provisional warrant was issued for his arrest in the Northern District of California, which is seeking to extradite him to the United States.

Zhang’s case was heard before the Westminster Magistrates’ Court in London on Monday, with Ben Lloyd, a barrister with law firm 6KBW College Hill, arguing on behalf of US prosecutors that Zhang had been involved in the payment of bribes to San Francisco authorities for the benefit of Z&L Properties, a private developer under his control which has frequently been linked to R&F.

In a statement on its official WeChat account late Tuesday, R&F said that it will take legal action against the “false accusations” of bribery which it linked to a certain “banquet dinner and hotel accommodation” provided to a former San Francisco public affairs executive who visited China.

Highest Bail Ever

Zhang, a former government official who together with co-founder Li Sze-Lim built R&F into one of China’s largest developers – and later among its biggest debtors – is contesting his extradition to the United States.

Z&L Properties, a privately funded condo developer controlled by the property tycoon which bears the initials of the family names of R&F co-founders Zhang and Li, acquired a development project at 325 Fremont Street in San Francisco for $28.5 million in 2015. The case alleges that Zhang was involved in the kickback scheme from 2015 through 2020.

While he fights his transfer to the US, Zhang has been freed on bail of £15 million ($18.43 million), which Bloomberg described as the highest sum ever recorded for courts in the UK. The judge also required that Zhang be confined to an apartment in an undisclosed location in the city to be monitored by security and CCTV.

When leaving the apartment to attend court, Zhang must be handcuffed to a member of his court appointed security team, per the Reuters report.

In the court appearance, an attorney representing Zhang stated that £10 million of the tycoon’s bail would be provided by R&F, while the defendant would personally pay the remaining £5 million, per the media report.

However, the Hong Kong-listed builder was quick to distance itself from the allegations, as its stock price plunged 12 percent on Tuesday.

“The company wishes to clarify that it did not provide any security money for the bail, it has no interest in Z&L Properties Inc. (which is owned by Mr. Zhang Li and his affiliate), and the case will not have any material adverse impact on the Company’s business and operations,” R&F said in a stock exchange filing on Tuesday. Despite the statement to the bourse, R&F shares closed on Wednesday at HK$2.15 each – down from HK$2.44 at the end of Monday. The stock had opened the week at HK$2.63.

Striking Out in California

The court case adds to a woeful track record for Zhang’s California projects, with the criminal charges coming three years after Z&L saw two of its four developments in Silicon Valley seized by city officials as it repeatedly missed completion deadlines and milestones.

The developer’s 2015 purchase of 325 Fremont Street, in San Francisco’s Rincon neighborhood, came after the project had sat dormant for many years. More than seven years later, Z&L has yet to complete the residential development, and no sales have been recorded at the address, according to local property records.

In August 2019, local news outlets reported that the City of San Jose had won permission to terminate Z&L’s involvement in a 305-unit residential development in North San Pedro as well as in a 221-unit complex in downtown San Jose, citing violations of land sale agreements.

At the time Z&L was also facing complaints about unpaid bills, use of substandard materials and human trafficking related to its Park View Towers project.

Z&L has four projects in San Francisco with another six spread across San Jose, Los Angeles, Santa Clara and Marin City according to its website.

One of its largest developments, a 640-unit luxury condominium at 188 West Saint James in San Jose, was reportedly the subject of a US Labour Department probe in 2018 and was reported to be at least 24 months behind schedule in 2019.

Local news reports earlier this year said construction of 188 West Saint James is nearly complete, and that apartments have already been launched for sale at prices ranging from $525,000 to over $1 million.

Chinese Developers’ US Bribes

Zhang, whose real estate empire has provided him with a $2.2 billion fortune according to Forbes, joins a growing club of Chinese developers whose activities have entangled them in corruption cases in the US.

Last month, Shen Zhen New World, a California-based developer owned by mainland citizen Wei Huang, was found guilty on eight counts related to paying at least $1 million in bribes to former Los Angeles City Councilman José Huizar to secure approvals for a proposed 77-story skyscraper.

Wei has also been charged in the case, but was described by the US Attorney’s Office for the Central District of California as a fugitive who is believed to be in China.

A statement from the US Department of Justice showed that the company had been found guilty of “three counts of honest service wire fraud, four counts of interstate and foreign travel in aid of bribery, and one count of bribery.”

R&F Woes Continue

The arrest of its co-chairman comes after R&F in July was forced to restructure $5.1 billion in offshore bonds, with the company continuing to sell down assets to raise cash.

Before his arrest, Zhang’s presence in London would have allowed him to check up on some of the developer’s developments there, with R&F having sold its Vauxhall Square project in the city twice this year. In May, R&F also sold its Thames City development in London at a $230 million loss, with that asset only changing hands once this year.

Late last month, R&F agreed to a deal closer to its home market, when it sold the Tower 3 in its Hongqiao R&F Center office development in western Shanghai to photovoltaic manufacturer Jinko Solar Co for RMB 707 million ($99.2 million).

Guangzhou R&F swung to a net loss of RMB 6.9 billion in the first half of 2022 from the RMB 3.2 billion net profit it booked in the same period a year ago. In November, the company also obtained approval from domestic creditors to push out the maturities of eight bonds worth RMB 13.5 billion by an average of three years.