China's property crash sends billionaire founders heading to exits

For two years, bad news has kept piling on for Chinese property developers.

The nation’s worsening credit crisis has led to defaults, failure to deliver homes on time and an unrelenting market selloff. Now a new phenomenon has emerged: Builders’ founders are leaving.

Longfor Group Holdings Ltd.’s Wu Yajun resigned on Friday as executive director and chair, shortly after Soho China Ltd.’s Pan Shiyi quit in September. While Wu cited health reasons, the timing has startled analysts.

“It’s very likely that we will see more mainland property founders leaving important roles in their firms,” said Kakei Lam, fund investment officer at Metaverse Securities in Hong Kong. “The golden age of Chinese property is gone, and they probably don’t see too much they can do to help.”

The surprise move sent Longfor’s stock and bonds tumbling on Monday, even as Wu’s family spent HK$28.6 million ($3.6 million) snapping up shares to shore up market confidence and the company partially repaid a syndicated loan early. The resignation is only adding to concerns that the developer — which has the highest credit rating among private peers in China — won’t be able to rely on its relatively strong position to stave off the ongoing national crisis.

While the trend is only starting in the property sector, China’s tech industry has seen several high-profile founders resign following a crackdown that began with Ant Group Co.’s torpedoed initial public offering, costing the firms billions of dollars in market value. Entrepreneurs are quitting because they’re worried about Xi Jinping’s drive to regulate wealth accumulation, said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA.

In the case of Soho China, the stock has tumbled to a record low since Pan left the company to focus on philanthropic pursuits.

Once China’s richest woman, Wu has lost two-thirds of her wealth this year and has dropped out of the Bloomberg Billionaires Index, which tracks the world’s 500 richest people. As of Monday’s close, she was worth $4.5 billion.

While Wu’s resignation sent shock waves through the market, the 58-year-old said she’d been preparing her succession for three years, inspired by He Xiangjian, the billionaire founder of appliance maker Midea Group Co. who handed the reins to a group of professional managers a decade ago.

In a call over the weekend, Wu told investors she’s been suffering from diabetes and thyroid disease for years and initially planned to announce her departure after Longfor’s most recent earnings report in August, state media reported. She decided to postpone to wait for a better time and mentioned the company bought some plots of land in September.

Chen Xuping, Longfor’s chief executive officer since March, succeeded Wu as chair and two other new directors were appointed to the board on Friday. Wu vowed to remain as a strategic development consultant to help with the business model and look for growth opportunities, the state media report said.

Wu Yajun

“The selloff reflects the market doubts on the ability of the successor and whether the firm can maintain its development plans in the future,” Metaverse Securities’ Lam said.

Known as one of the top self-made female entrepreneurs in China, Wu lost her title as the country’s richest woman after divorcing Cai Kui in 2012 and transferring to him more than one-third of the Longfor shares they held together. The following year, she set up her own family office, Wu Capital, to diversify her investments into private equity and technology.

In 2018, Wu conveyed all her Longfor stake to a discretionary trust established by her daughter, Cai Xinyi, citing “family wealth and succession planning.” She put her in charge of the family office two years later, though Wu still holds the Longfor voting rights from the trust.

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Wu’s rise is an example of China’s massive wealth creation over the past decades. Born into a humble family in the southwestern city of Chongqing, she studied thermal power torpedo equipment design at the Northwestern Polytechnical University of Xi’an and was assigned to a state-owned factory after graduating in 1984. Inspired by the economic growth unleashed by the country’s opening up, she quit her stable job to become a real estate reporter.

Wu decided to start her own property firm after she bought her first apartment in her hometown, an experience that left her disappointed after its delivery was delayed and she discovered when she moved in that the elevator service was spotty. She founded Longfor’s predecessor in 1993 to cater to demand for new, better quality homes. The firm sold its first residential project four years later, and the business soon expanded to other major Chinese cities.

Longfor started trading publicly in Hong Kong in 2009 and has been considered a healthy developer as it meets the “three red lines” — the debt restrictions China imposed as part of its crackdown on leverage. The firm remains one of the rare builders in the nation that managed to post net income growth in the first half of this year and hand out cash dividends.

But China’s dimming economic outlook amid its punishing Covid policies and limited financing channels are hampering confidence in Longfor’s growth. And Wu’s stepping down isn’t helping.

“We are concerned the resignation may have an impact on confidence among Longfor’s stakeholders, e.g. suppliers, homebuyers and financial institutions,” UBS Group AG analysts including John Lam wrote in a note Monday. That could bring pressure on the company’s liquidity, they added.