China’s property crash sends billionaire founders heading to exits

China’s worsening credit crisis has led to defaults, failure to deliver homes on time and an unrelenting market sell-off. PHOTO: REUTERS

HONG KONG – For two years, bad news has kept piling on for Chinese property developers. 

The nation’s worsening credit crisis has led to defaults, failure to deliver homes on time and an unrelenting market sell-off. Now a new phenomenon has emerged – builders’ founders are leaving.

Longfor Group Holdings’ Ms Wu Yajun resigned last Friday as executive director and chair, shortly after Soho China’s Mr Pan Shiyi quit in September. While Ms Wu cited health reasons, the timing has startled analysts. 

“It’s very likely that we will see more mainland property founders leaving important roles in their firms,” said Mr Kakei Lam, a fund investment officer at Metaverse Securities in Hong Kong. “The golden age of Chinese property is gone, and they probably don’t see too much they can do to help.”

The surprise move sent Longfor’s stock and bonds tumbling on Monday, even as Ms Wu’s family spent HK$28.6 million (S$5.2 million) snapping up shares to shore up market confidence and the company partially repaid a syndicated loan early. The resignation is only adding to concerns that the developer, which has the highest credit rating among private peers in China, will not be able to rely on its relatively strong position to stave off the ongoing national crisis. 

While the trend is only starting in the property sector, China’s tech industry has seen several high-profile founders resign following a crackdown that began with Ant Group’s torpedoed initial public offering, costing the firms billions of dollars in market value. Entrepreneurs are quitting because they are worried about President Xi Jinping’s drive to regulate wealth accumulation, said Ms Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis.

In the case of Soho China, the stock has tumbled to a record low since Mr Pan left the company to focus on philanthropic pursuits. 

Once China’s richest woman, Ms Wu has lost two-thirds of her wealth this year and dropped out of the Bloomberg Billionaires Index, which tracks the world’s 500 richest people. As at Monday’s close, she was worth US$4.5 billion (S$6.4 billion). 

In a call over the weekend, Ms Wu told investors she had been suffering from diabetes and thyroid disease for years and initially planned to announce her departure after Longfor’s most recent earnings report in August, state media reported. She decided to postpone to wait for a better time and mentioned the company bought some plots of land in September. 

Mr Chen Xuping, Longfor’s chief executive officer since March, succeeded Ms Wu as chair and two other new directors were appointed to the board last Friday. Ms Wu vowed to remain as a strategic development consultant to help with the business model and look for growth opportunities, the state media report said.

“The sell-off reflects the market doubts on the ability of the successor and whether the firm can maintain its development plans in the future,” Metaverse Securities’ Mr Lam said. 

Known as one of the top self-made female entrepreneurs in China, Ms Wu lost her title as the country’s richest woman after divorcing Mr Cai Kui in 2012 and transferring to him more than one-third of the Longfor shares they held together. The following year, she set up her own family office, Wu Capital, to diversify her investments into private equity and technology. 

Ms Wu’s rise is an example of China’s massive wealth creation over the past decades. Born into a humble family in the south-western city of Chongqing, she studied thermal power torpedo equipment design at a university in Xi’an and was assigned to a state-owned factory after graduating in 1984. Inspired by the economic growth unleashed by the country’s opening up, she quit her stable job to become a real estate reporter. 

Ms Wu decided to start her own property firm after she bought her first apartment in her home town, an experience that left her disappointed after its delivery was delayed and she discovered when she moved in that the lift service was spotty. She founded Longfor’s predecessor in 1993 to cater to demand for new, better-quality homes. The firm sold its first residential project four years later, and the business soon expanded to other major Chinese cities. 

Longfor started trading publicly in Hong Kong in 2009 and has been considered a healthy developer as it meets the “three red lines” – the debt restrictions China imposed as part of its crackdown on leverage. The firm remains one of the rare builders in the nation that managed to post net income growth in the first half of this year and hand out cash dividends. 

But China’s dimming economic outlook amid its punishing Covid-19 policies and limited financing channels are hampering confidence in Longfor’s growth. And Ms Wu’s stepping down is not helping. BLOOMBERG

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