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Shirley Yam

More than a year ago, the new leadership in Beijing said the market should be given a bigger say in the country's economy.
The saga of Kaisa Group Holdings, however, showed otherwise, with the Shenzhen authorities in the driver's seat all the way.
It all started in October last year, when a key Shenzhen official was arrested in a graft-related investigation. Among his cases is a redevelopment project which involved Kaisa.
Kaisa's chairman and controlling shareholder Kwok Ying-shing fled to Hong Kong before the investigators arrived. That was not good news for Kaisa but it did not necessary spell the end for the mainland company.
The market has seen in the cases of Gome Electrical Appliances Holding and Skyworth Digital Holdings how a mainland company could continue to thrive even when the boss is in jail.
The Shenzhen government, however, went for the worst option.
In November, it barred Kaisa from selling its four prime properties in the city.
There was talk the move was aimed at prompting Kwok to come forward to help in the investigation.
Anyone with a bit of understanding of the leverage game of the property industry would know it meant only one thing - big trouble.
No one would believe that Kwok, whose family has already made a fortune in Hong Kong including an established securities house - would surface.
As expected, the cash shortage quickly pushed Kaisa into a vicious cycle, with creditors scrambling to gain control of its properties to protect their interests.
For Kwok, running Kaisa from a distance was no longer feasible.
Then there was the social problem as buyers of Kaisa's Shenzhen flats panicked over their purchases.
On January 13, several hundred buyers staged a rally at one of the properties. Reports with pictures of them carrying banners demanding the local government protect their property titles were widely carried in the local newspapers. That was rare.
The incident caught Beijing's attention and a swift settlement was ordered. Slogan-chanting demonstrators on the streets is the last thing it wants to see on the eve of Lunar New Year.
Before January 23, the Shenzhen government invited at least four developers to consider "rescuing" Kaisa. Among them were Sunac China Holdings and China Resources Land. They were given only a few days to go through the books and make a decision.
Public pressure, however, continued to mount. On January 26, about 2,000 buyers of Kaisa flats "magically" made it to Citizen Square, the city's centre of power where government departments are clustered.
The rally was followed by a well publicised meeting with government officials who promised to release the flats as soon as possible.
In the meantime, contractors were allowed to take hold of Kaisa flats to settle their fees and therefore ensure construction work continued. Without the government's blessing, this would not have been possible.
On January 30, Sunac signed off on the 4.5 billion yuan (HK$5.6 billion) purchase of Kwok's 49.2 per cent interest in Kaisa.
How did the Shenzhen government get Kwok, who is supposed to be in hiding, to agree to the sale? Why was Sunac chosen?
A source close to the deal said Sunac demanded creditors halve Kaisa's debt before it would complete the purchase. The creditors did not really have a choice, the source said.
What about the ban on the sale of the Shenzhen properties? "Had there not been an agreement with the Shenzhen government, Sunac would not have signed," the source said.
That brought the whole thing back to the first puzzle. If the ban is not key to the graft investigation, why was it imposed in the first place?
Were the Shenzhen officials reckless with the financial and political repercussions? Given Kaisa's size, it is difficult to imagine that is the case.
Or it was done to force Kwok into giving up control of his empire and the prime assets in it? If so, who stands to benefit other than Sunac?
The answer may never be known. The only thing for sure is that the government, not the market, will always have the final say in China.
shirley.yam@scmp.com


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Money Matters

Market to have bigger say, but government has final word in Kaisa case

Kwok Ying-shing's 49.2 per cent interest in Kaisa Group Holdings was sold to Sunac China Holdings. Photo: May Tse

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.css-1m2rp1p{color:#34b8b5;}Money Matters | Market to have bigger say, but government has final word in Kaisa case

Money Matters | Market to have bigger say, but government has final word in Kaisa case