Wednesday, 15 October 2014

Corruption probe puts heat on Agile Property

Detention of chairman not the first time firm is placed in the spotlight, having been involved in sexual assault and corruption cases previously


Guanyu said...

Corruption probe puts heat on Agile Property

Detention of chairman not the first time firm is placed in the spotlight, having been involved in sexual assault and corruption cases previously

Peggy Sito
15 October 2014

Agile Property Holdings is no stranger to scandal, but the detention of its chairman and founder on the mainland amid allegations of corruption has raised the heat on the Guangdong-based developer to unprecedented levels.

Chen Zhuolin has been ordered by the Kunming City People’s Procuratorate to stay at a designated residence - a form of house arrest - while investigations continue.

Agile said in a filing to the Hong Kong stock exchange on Friday it was not aware of any other information related to Chen’s condition.

The detention followed mainland reports that alleged corruption at Agile’s projects in Yunnan.

An online report, denied by Agile, raised allegations of money laundering and said former security chief Zhou Yongkang, who is being investigated for graft, had a close relationship with Agile’s executive director Chan Cheuk-yin, Chen’s youngest brother.

Agile said Chen’s wife, Fion Luk Sin-fong, and Chan had been appointed executive directors and acting co-chairmen in Chen’s absence - a similar move it made in 2012 when Chen was arrested for alleged sexual assault.

“This time, the impact on the company is believed to be more serious than the one in 2012,” Bocom International analyst Alfred Lau said. “There are a lot of uncertainties in the probe. What is the issue and how big will the investigation be?”

Chen was arrested in Hong Kong in August 2012 for allegedly assaulting his secretary during a private party at his home in Purves Road, Happy Valley.

Shares of Agile fell 12 per cent in four days from August 31, 2012, after the company confirmed Chen’s arrest. The case was closed in March last year after the prosecution dropped the charges. Chen was required to give a written apology and pay the victim’s medical bills of about HK$4,000.

But that was not the first major scandal to rock the company since its listing in Hong Kong in December 2005.

Chen founded Agile with his brothers in Zhongshan, Guangdong, in 1989, as a furniture maker. The company moved into property in 1997 with investments in Zhongshan and then expanded to other parts of the province in 2002.

But it was a 20 billion yuan Hainan Clearwater Bay project, a tourist resort joint venture with Morgan Stanley, that set the company on the road to fame, fortune and controversy.

In February 2009, investment bank Morgan Stanley fired the managing director of Morgan Stanley Real Estate in Shanghai for suspected violation of the United States Foreign Corrupt Practices Act.

Mainland media reported that the joint-venture project had triggered a graft investigation. Agile denied the report, but it led to a sell-off in its shares.

The case ended when the former executive was jailed for nine months in the US for corruption in a Shanghai property deal.

Analysts said Agile had made a lot of money from the Hainan project, which had also established its unique brand. That success spurred Agile to embark on another tourism development in Yunnan - now the subject of controversy.

Mainland media said Agile officials involved in projects in Yunnan were under investigation.

Analysts said Agile was expected to be hit hard in the near term. The company’s shares plunged as much as 30.8 per cent on Monday after they resumed trading, before the loss was pared to 17.2 per cent at the close. The stock regained 5.06 per cent yesterday to close at HK$4.15.

Agile has not commented on the reports of problems in Yunnan. In a conference call with analysts on Monday morning, it said it had three projects in Yunnan and planned to invest more than 3 billion yuan (HK$3.8 billion) this year.

Guanyu said...

To tackle its cash problem and to repay a US$475 million offshore loan maturing soon - after suddenly cancelling a HK$2.8 billion rights issue - the company said it was talking to its partners on asset disposals worth about 20 billion yuan.

It also said it would speed up revenue flows due to more flexible pricing of new launches.

“The street is concerned about the default risks of Agile,” Edison Bian, the head of China property at UOB Kay Hian (Hong Kong), said in a research report released on Monday.

But Bian added there was still hope. “Agile is still one of the largest developers in southern China, and many of the projects are well known. The company is in talks with a few large, listed developers on potential cooperation, which will turn out to be supportive to the stock if fulfilled.”