An announcement that Hengda Property sued Hengda for 2 billion exposed the internal entanglement of the "father and son".
In fact, it is not only Hengda Property that has taken the parent company to court. Since the beginning of this year, there have been many cases of property companies recovering accounts receivable from related real estate companies. At present, the real estate industry is in a downward cycle, and the capital problems of real estate related parties often lead to the impact of property companies, especially listed property companies. On the one hand, they are suspected of "blood transfusion" parent company. On the other hand, the real estate liquidity crisis has caused a large number of bad debts of property companies in accounts receivable, which has affected the profitability level.
In the opinion of industry experts, establishing a regulatory system for the use of property management fees in the property industry to ensure that project funds can be misappropriated at least is the key to preventing such incidents.
Hengda property to China Hengda recover 2 billion yuan
On November 28, Hengda Property announced that regarding the enforcement of its deposit pledge of about 13.40 billion yuan by the relevant banks, its wholly-owned subsidiary Jinbi Property has filed a lawsuit with the Intermediate People’s Court of Guangzhou City, Guangdong Province, China, for the recovery of Shenzhen Qihang Metal Materials Co., Ltd., Guizhou Guangjuyuan Real Estate Development Co., Ltd., Hengda Real Estate Group Co., Ltd., Hengda Real Estate Group Co., Ltd., and China Hengda Group for the enforcement of the deposit certificate pledge guarantee of about 2 billion yuan by the bank. It requires the relevant responsible parties to repay about 1.996 billion yuan and the provisional interest of about 150 million yuan. Hengda Property said in the announcement that it has received the notice of the court’s formal acceptance of the case on November 28.
On November 29, China Evergrande announced that it had paid attention to Hengda Property’s announcement on November 28 that Jinbi Property (a subsidiary of Hengda Property) had sued China Evergrande and three related subsidiaries for the enforcement of the 2 billion yuan deposit certificate pledge guarantee by the bank. As of now, China Evergrande has not received the notice of the Guangzhou Intermediate People’s Court to file a lawsuit against Jinbi Property.
It is well known that China Evergrande and Evergrande Property have a "father and son" relationship, and the public litigation at this time also exposed its internal entanglements.
In this regard, Yuan Chengjian, co-founder of Jiancheng Shengye, believes that from the perspective of legal relationship, although the two companies are affiliated companies, they are also two independent listed companies. Adopting such a legal and responsible handling method for shareholders can protect the interests of Hengda property shareholders during the handling of Hengda real estate debt, and also provide a reference for other similar events.
"But judging from the current situation, this treatment method has little practical effect, and it is estimated that the misappropriated funds that can be truly recovered will not be too much, or even just a kind of debt confirmation." Yuan Chengjian said.
Wang Yuchen, director of Beijing Jinsheng Law Firm, also pointed out that even if Hengda Property eventually wins the case, it will be difficult to recover the money, because judging from the current financial situation of China Evergrande, there may also be difficulties in implementation.
Xinyuan Service and Jinke Service also "collect debts" from the parent company
Taking the parent company to court is not just Hengda Property, but also the case of property service companies collecting debts from affiliated real estate companies.
On August 15 this year, Xinyuan Service announced that the financing obtained from its pledge was finally transferred to Xinyuan Real Estate for its daily business activities, namely project construction and delivery guarantee. Subsequently, Xinyuan Service submitted an arbitration against Xinyuan Real Estate to the Hong Kong International Arbitration Center, claiming to recover any losses suffered by the company on the mortgage.
It is reported that Xinyuan Real Estate holds shares in Xinyuan Service 300 million with a shareholding ratio of 60%. Xinyuan Real Estate is wholly owned by Xinyuan Real Estate.
In October this year, Xinyuan Service announced that the Hong Kong Arbitration Center has made a final and legally binding arbitration award, requiring Xinyuan Real Estate to immediately pay the losses suffered by Xinyuan Service, including the deposit principal of 402 million yuan, the time deposit interest loss of 2443.82 million yuan and the cost of review and investigation, totaling about 430 million yuan. On November 15, Xinyuan Service, which has been suspended for one year, issued two announcements to update its resumption progress.
In addition, the related party transaction between Jinke Services and Jinke shares has also been a source of concern.
Jinke shares received the litigation materials from the Chongqing No. 1 Intermediate People’s Court on May 29, and learned that the plaintiff Jinke Service Sued Company and its holding subsidiaries’ case on loan contract disputes has been accepted by the court. Jinke shares are requested to immediately return the principal of the loan of Jinke Smart Service 1.50 billion yuan, the interest as of March 20, 2023 32.3327 million yuan and the interest from March 21 to the settlement date.
On August 13, Jinke Services announced that the relevant member companies of Jinke Shares will transfer their respective offset properties to Jinke Services as payment in lieu of the payables due from the continuing related party transaction. The amount involved is 20.40 million yuan, and the offset properties include 36 items, with a total valuation of 20.80 million yuan. Although the relevant member companies of Jinke Shares have transferred 36 offset properties to offset the payables of about 20.40 million yuan, the scale of debt offset is still relatively limited compared to the litigation amount of about 1.50 billion yuan.
At that time, Jinke Service proposed in the announcement that Jinke shares were currently facing a serious liquidity crisis, and therefore could not settle the payments due to the company in cash. In view of the relevant circumstances, the company had reduced the provision of property management services or non-owner value-added services to Jinke shares.
Industry: Establishing a regulatory system is the key to prevention
In recent years, the profitability of property enterprises has declined significantly, among which the clearing of risks such as related party transactions is the main reason. In this regard, the Middle Finger Research Institute analyzed that the real estate liquidity crisis has caused a large number of bad accounts receivable of property companies, which has greatly affected the level of profitability. For example, in 2022, the average value of accounts receivable and bills of listed companies in property services was 1.531 billion yuan, an increase of 36.45% year-on-year; some listed companies disclosed the accounts receivable from related companies, and the average value of this indicator was 173 million yuan, an increase of 63.21% year-on-year. With the expansion of the scale of accounts receivable, the turnover days of accounts receivable have slowed down significantly. In 2022, the bad debt provisions for accounts receivable accrued by property management companies have generally increased. Some companies have made a large amount of impairment against the accounts receivable of related real estate enterprises, which has a significant impact on their performance.
In fact, in the past two years, the real estate industry has been in a downward cycle, and many property companies have also been affected by the financial problems of real estate related parties. On the one hand, the financial independence of listed property companies has been questioned, and they are suspected of "blood transfusion" parent companies. On the other hand, a large number of related party transactions receivables cannot be collected.
In this regard, Yuan Chengjian believes that establishing a regulatory system for the use of property management fees in the property industry to ensure that project funds can be misappropriated at least is the key to preventing such incidents, and it is also a true system guarantee for owners to be responsible.
Beijing News reporter, Yuan Xiuli
Editor, Yang Juanjuan, Proofreader, Wang Xin
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