Chen Zhuolin Chairman of Agile Property Holdings Ltd.
The stock plunged as much as 31 percent to HK$3.30 in Hong Kong after it resumed trading following a suspension since Oct. 3 and was 20 percent lower at HK$3.82 as of 1:21 p.m. local time. The shares were downgraded by at least five brokerages, including JPMorgan Chase & Co. and DBS Group Holdings Ltd., according to data compiled by Bloomberg.
Agile, based in Guangdong province, was
told by Chen’s wife the chairman was confined at a “designated residence” since the evening of Sept. 30 by prosecutors in the southwestern city of Kunming, according to a company filing, which didn’t give a reason for the order. The announcement comes after the developer called off a HK$2.8 billion ($361 million) rights offer last week.
“The custody will likely raise concerns about its land bank and business operation” in Yunnan province, where Kunming City is located, Bank of Communications Co. analysts Toni Ho and Alfred Lau said a note today in which they cut their stock recommendation to a sell. Agile’s land bank in Yunnan makes up about 7.4 percent of its total reserves, they said.
Chen’s Detention
Chen will remain chairman and president and the company appointed Chen’s wife Luk Sin-fong, 53, and brother Chan Cheuk-yin, 47, as executive directors, acting co-chairmen and acting co-presidents, it said. The company doesn’t have any evidence at the moment that Chen’s detention is related to “any lost or misappropriation of funds or assets,” it said.Agile on Oct. 7 said an article on a Chinese website, which linked it to former Chinese security chief Zhou Yongkang who is under investigation for corruption, was groundless and untrue. It said then the report damaged the reputation of the company and it reserved the right to take legal action.
The article claimed Zhou is a substantial shareholder of Agile, that Agile assisted in money laundering and Zhou had a close relationship with Chan Cheuk-yin.
President Xi Jinping’s anti-graft campaign reached new heights in late July after the government announced a probe of Zhou, the highest-level corruption investigation since the ruling Communist Party came to power more than 60 years ago.
Bonds Plunge
“We’re still concerned about what else will get revealed,” Owen Gallimore, a Singapore-based credit strategist at Australia & New Zealand Banking Ltd., said. We “retain our defensive stance on the property sector rather than look to chase the usual dead-cat bounces we see in these situations.” ANZ cut Agile’s debt to underweight in June last year citing corporate governance concerns.The company’s $700 million of 8.25 percent perpetual notes, sold to investors at par in January 2013, are trading at 69.5 cents on the dollar to yield 12.636 percent, BNP Paribas SA prices on Bloomberg show. They touched 67.5 cents on Oct. 10, a record low, and were trading at 84.25 cents on the dollar earlier this month before the Chinese website report.
While the chairman’s detention may not breach any existing loan facilities, Agile’s refinancing ability remains a “major concern,” Barclays Plc analysts said in a note yesterday.
“We expect the company to speed up the sales of all its products at bigger discounts,” Alvin Wong and Jianping Chen of Barclays wrote in the note. Its full-year sales target of 48 billion yuan ($7.8 billion) is “unachievable,” they said.
Chen started Agile in 1992 with capital from a furniture company he founded almost a decade earlier. The developer’s first project was holiday homes aimed at Hong Kong buyers. It began targeting local Chinese buyers when the 1997 Asian financial crisis affected the city’s economy.
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