Detention of chief at property firm Agile spooks market over debt
Share price plummets as house arrest of Chen Zhuolin raises doubts on loan due in December
Confirmation that Agile Property chairman Chen Zhuolin has been detained in China has deepened investors' concerns over the cash-strapped developer's ability to repay a US$475 million offshore loan that is maturing in December.
Global investment banks such as CLSA and Macquarie immediately slashed their target prices on Agile amid higher risks of potential lawsuits.
They also raised concerns about the impact on the property sector if the anti-graft inquiry was extended industry-wide.
Shares in the developer, suspended since October 3, plunged as much as 30.8 per cent yesterday after they resumed trading, before paring the loss through the day to close at HK$3.95, down 17.2 per cent.
The developer was embroiled in controversy after an online report that said Agile allegedly assisted in money laundering, and that former security tsar Zhou Yongkang had a close relationship with Chan Cheuk-yin, one of Agile's directors and also Chen's youngest brother. The report was denied by Agile.
Media reports had been swirling that Chen had disappeared. It was also reported by media in China that Agile officials involved in projects in Yunnan were under investigation.
On Friday, Agile quoted Chen's wife, Fion Luk Sin-fong, as saying that the Kunming city People's Procuratorate had ordered Chen to stay at a designated residence - a form of house arrest - beginning September 30. The company also cancelled a HK$2.8 billion rights offering that was supposed to take place that day.
CLSA, which cut its target price by 60 per cent to HK$3.50, said Agile would face immediate challenges, including to its ability to repay loans.
"Given the sudden cancellation of the proposed HK$2.8 billion rights issue, Agile has now only two months to find a way to repay the US$475 million offshore loan maturing December 14," CLSA said in a report.
A HK$2.67 billion syndicated loan issued in June carried a covenant requiring Chen to remain chairman of Agile. CLSA said the company faced the risk of a breach of that loan.
Agile said in Friday's announcement that Chen remained its chairman but that non-executive directors Luk and Chan had been named acting co-chairmen.
"Weak sales performance and project delays increase our concerns on its execution," Macquarie said in its latest report. It downgraded Agile and cut its target price by 41 per cent to HK$3.74.
In a conference call with analysts yesterday, Agile said it was in negotiations with partners on the disposal of assets worth about 20 billion yuan (HK$25 billion).
Hong Kong newspapers have also reported that Chen and related parties were selling two shops in the city with a combined asking price of more than HK$400 million.
