Hot property
As land prices have started rising recently, attention has turned again to an ongoing legal battle between Fosun International, China's largest private conglomerate by revenue, and real estate developer SOHO China over a piece of land in Shanghai.
"(We hope that) the court rules that SOHO China's acquisition is invalid. We trust the fairness of the law," Fosun International Ltd, a Shanghai-based conglomerate with investments in property, pharmaceuticals, mining and insurance, said in a statement e-mailed to the Global Times on December 6.
On November 29, the 20th anniversary of Fosun's establishment, its case against SOHO China was heard at Shanghai No.1 Intermediate People's Court. The court has not handed down a ruling on the case so far.
Pan Shiyi, chairman of SOHO China and one of the country's richest men according to Forbes magazine, complained on Weibo on December 3 that the media kept asking him about the case. "Can we not talk about this case? I'm so fed up with it," he wrote.
Prime real estate
The dispute is over a piece of land by Shanghai's Bund area, a famous waterfront district full of historic buildings. It's also a popular tourism spot, and land values there have been rocketing recently.
The spat between Fosun and SOHO China may put the fate of the development, which is tagged as an international financial services center on the Bund, at stake, as the two firms have different visions for the construction on one of the most expensive plots in China.
According to Guo, the land, at the conjunction of Renmin Road and East-1 Zhongshan Road, should be developed into a commercial complex intended for all types of stores, office buildings and hotels, while Pan prefers to develop it into a commercial property with smaller business communities.
The land, which has an area of 45,471.9 square meters, was auctioned in February 2010 and bought by Shanghai-based property developer Zendai Group, which made an offer of 9.22 billion yuan ($1.5 billion), the highest in Shanghai that year.
However, Zendai lacked sufficient capital to pay the total fee, so it sold the project in April 2010 to a newly established firm, Shanghai Sea Gate Real Estate Management Co, which was jointly owned by subsidiaries of Fosun, Zendai and Zhejiang-based Greentown China.
Fosun was the largest shareholder in the new firm, with a 50 percent stake, while Zendai had 40 percent and Greentown the remaining 10 percent.
But in 2011, the government squeezed lending for developers, tightened controls on mortgages and introduced limits on home purchases in an effort to curb the rise in home prices. As a result, many of China's property developers were forced to sell assets to raise cash and pay off debts.
Zendai and Greentown felt the pinch too, and as minority shareholders of Shanghai Sea Gate, they decided to sell their combined 50 percent stake.
Binding agreement?
According to an agreement signed by the investors in Shanghai Sea Gate, any party intending to sell shares in the company should get consent from the other shareholders. Normally it would be the remaining shareholders that buy the shares from those who would like to sell, and in this case Fosun expected to buy the shareholding of Zendai and Greentown.
But Fosun discovered in December 2011 that the buyer would be SOHO China. The company responded by taking SOHO China, Zendai and Greentown to court.
"We have submitted the agreement as evidence to the court," Fosun said in a statement sent to the Global Times on December 6.
Based on the agreement, Fosun had the first right to acquire the stakes held by Zendai and Greentown in Shanghai Sea Gate before the stakes were offered to any third party.
However, SOHO China didn't purchase shares in Shanghai Sea Gate, Liu Junchang, a partner with Shanghai Xincheng Law Firm, told the Global Times Sunday. It purchased shares in Zendai and Greentown instead, and if the agreement did not ban this practice, it can hardly serve as supportive evidence for Fosun, said Liu.
SOHO approached
Fosun had first approached SOHO China in April 2011, saying that it would buy Zendai and Greentown's shares and offering to sell 40 percent of them to SOHO, Pan said in an open letter on November 20 this year.
But Pan wanted control of the two companies' combined 50 percent stake. In November 2011, after seven months of negotiation with Fosun, Zendai contacted Pan and asked if he would be interested in buying, as both Zendai and Greentown were suffering capital pressure.
"Zendai and Greentown sold the 50 percent stake for 4 billion yuan, which was the best result that we could achieve at that time," Dai Zhikang, chairman of Zendai Group, said on Weibo on December 5.
On December 27, Fosun demanded a payment of 500 million yuan from SOHO China as well as a 2-billion-yuan loan to Shanghai Sea Gate for developing the project in return for taking the equity owned by Zendai and Greentown, Pan noted.
"I believe this demand makes no sense. So we signed an agreement with Zendai and Greentown," Pan said.
Fosun continued to insist that SOHO China should pay it 500 million yuan and threatened to sue otherwise, according to Pan.
Rancor and rumor
"Currently the project team is stable and everything is fine. This project doesn't need SOHO China," Fosun told the Global Times, denying that the lawsuit would undermine the development of the Bund project.
Guo Guangchang, chairman of Fosun, said that Pan's way of doing things is tough and tactical, but that he did not agree with it, the Economic Observer reported on December 3.
SOHO China secured the deal by taking advantage of the capital pressure Zendai and Greentown were facing, and their increasingly desperate need for funds, Guo said.
"It is Pan who deliberately delayed (the process)," he noted.
However, Zendai Chairman Dai Zhikang saw it differently. "Fosun's disagreement with SOHO China directly harmed the interests of Zendai and Greentown," Dai wrote on Weibo on December 1. "We were forced to make a deal with SOHO China," he wrote.
SOHO China initially offered 4.5 billion yuan for the 50 percent stake. Then it lowered the price to 4.25 billion yuan and again to 4 billion yuan, just because of the dispute with Fosun, Caixin reported on December 4 this year, citing Tang Jian, an executive at Zendai.