Embattled Cheung Kei to sell equity in offshore assets

Cheung Kei Group, a private mainland developer controlled by Shenzhen-based tycoon Chen Hongtian, has unveiled a plan to offload equity in some overseas assets to overcome its “short-term cash flow problem”.

Two properties in Canary Wharf, London, are undergoing restructuring, according to a company statement on WeChat.

“Like all companies with heavy assets, Cheung Kei has also encountered a short-term cash flow problem,” the company said in the statement on Monday.

“We hope all sectors of society, especially the media and the public, have more understanding and tolerance for entrepreneurs and look at the enterprises’ mild mortgage default problems with a rational perspective.”

Cheung Kei Group did not specify which media outlet it was referring to in the statement. But the statement follows media reports about the company’s financial problems on platforms like internet portal Sohu.com and on WeChat.

In March, Cheung Kei Group’s three properties in Hong Kong, including a 9,212 sq ft house at 15 Gough Hill Road, a flat in Opus Hong Kong in eastern Mid-Levels and the Cheung Kei Center commercial building in Hung Hom, were taken over by creditors following mortgage defaults.

The three assets were mortgaged with banks for about HK$6 billion, but they were currently valued at about HK$10 billion, Cheung Kei Group said.

“The scale and quality of Cheung Kei Group’s overall assets are very high while its debt ratio is at a relatively low level among others in the industry,” the company said, without providing financial details. The company said it was actively negotiating repayment arrangements with relevant financial institutions.

Cheung Kei Group, which has offices in Hong Kong and Shenzhen, was founded by Chen in 1990. The company focuses on real estate investment and owns several hotels and office buildings in Hong Kong, London, Shenzhen and Southeast Asia, according to its website.

One of Chen’s seized properties, One Harbour Gate East Tower in Hung Hom worth HK$7 billion, was put up for sale recently by its receivers.

The billionaire said in an interview with the Post this month that he was in discussions with lenders to retrieve his seized assets.

After years of rapid growth on the back of the urbanisation focus in Beijing’s five-year plans, China’s vast property sector hit a speed bump as the “three red lines” policy forced many private developers to scale back debt levels. The policy, unveiled in August 2020, triggered a wave of defaults and caused widespread financial distress in the property sector.

The three red lines policy dictated the cash to short-term debt, liability to assets, and net gearing ratios for property companies, the pursuit of which resulted in an unprecedented downturn in the industry. By 2021, industry leader China Evergrande Group whose growth was fuelled by a debt binge, saw its borrowing balloon to over US$300 billion, almost triple its 2015 levels.

“In the current difficult economy, irrationality can only lead enterprises to fall into more unnecessary troubles, which is of no benefit to individuals, enterprises, financial institutions, or even the society,” Cheung Kei Group said.