Kaisa and Its Boss Rise and Fall Together
Zhang Xinchen
/SOURCE : Yicai
Kaisa and Its Boss Rise and Fall Together

(Yicai Global) Sept. 6 -- Most founding bosses in the realty business hold total sway over their companies, especially in strategy. In top companies like Evergrande Real Estate Group and Country Garden Holdings, the bosses oversee strategy while presidents execute their instructions and manage daily operations.

Bosses' short-term absences generally do not affect company operations, but if the owner is away too long this may inflict severe harm as the realty business is capital-intensive and debt-riddled, while most loan contracts contain mandatory provisions such as the "Owner or his/her family members must serve as the chairman of the board and exercise absolute control over the company."

A firm may thus become mired in multiple debt defaults and suffer a run on it by creditors' if a major event causes its owner to be unable to perform.

Shenzhen Kaisa Group Holding suffered cash flow depletion when creditors ran on it after massive debt defaults broke out in 2015 at the company triggered by the absence of its owner, Guo Yingcheng who was otherwise detained by a corruption investigation that prompted many lenders to call in their debts.

Guo decided to resign his position as the chairman and executive director, citing health grounds, Kaisa Group Holding announced in December 2014.  

Prior to the announcement, local Chinese land resource officials had sealed up several of Kaisa's buildings because of Guo's implication in the alleged CNY250 million (USD37 million) bribery case of Jiang Zunyu, ex-secretary of Shenzhen's political and judiciary commission, rumored to have taken bribes from developers while serving as a local land official.

Neither Jiang nor Guo was ever convicted.

Kaisa Group Holding failed to repay an HKD400 million (USD51 million) loan from Hong Kong and Shanghai Banking, in a compulsory early repayment triggered by Guo's resignation, the company announced in January 2015. It also faced several loan, bond and share defaults at that time.

With its stock suspended from trading for more than 700 days and projects sealed up, creditors calling in debts and cash flow exhausted as a result of the owner's absence, Kaisa Group Holding's turbulence had been ongoing for more than half a year before it finally managed to get things back on track, but by then the once leading company had already foregone the two most prosperous years in the Chinese real estate market's history.

Editor: Ben Armour

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Keywords: Kaisa , Guo Yingcheng