Guangzhou R&F Properties distanced itself from a real estate project in San Francisco, as its stock price plunged in Hong Kong after the arrest of its co-founder Zhang Li in London over allegations of kickback to secure the project.

Zhang was arrested in London on November 30 for extradition to the US to face bribery charges over a project by Z&L Properties in San Francisco, Reuters reported overnight.

Z&L is “owned by Zhang and his affiliate,” R&F said in a statement to the Hong Kong stock exchange on Tuesday, adding that it had “no interest” in the San Francisco project or its closely held developer.

R&F’s shares and bonds dropped after Zhang’s arrest. R&F shares plunged by as much as 16 per cent in an advancing market to an intraday low of HK$2.05 while its bond maturing in 2025 is now bidding at US$24.05 cents on the dollar, down 4 per cent from a day earlier.

Zhang was granted bail of £15 million (US$18.4 million) and confined 24 hours a day to a 43rd-floor apartment in London. Zhang, a former government official in China before he entered business, is contesting the extradition to the US.

Zhang was accused of bribery “for hosting a dinner in China for a former public affairs executive in San Francisco and providing him with hotel accommodation,” R&F said on its official WeChat account, confirming the arrest of its co-founder.

Still, R&F said it did not post bail for Zhang, and is taking “legal actions to fight against the false allegations,” according to its statement, adding that the case would not have any material or adverse impact on its business and operations.

The arrest in London of a Chinese businessman for extradition to the US to face American justice mirrors the December 2018 detention of Huawei Technologies’ chief financial officer Sabrina Meng Wanzhou in Vancouver for extradition to the US.

Meng, the daughter of Huawei’s founder Ren Zhengfei, ultimately prevailed against the extradition order and returned to China in September 2021, with the US Justice Department dropping all charges against her a year later.

Zhang, 69 years old in May, worked as a minor bureaucrat in various property-related government bureaus and projects in Guangzhou before establishing R&F in 1994 with his business partner Li Sze-lim, according to a prospectus by Kinetic Development Group Limited. Kinetic was established in 2006 by Zhang and his son Johnson Zhang.

Zhang is a delegate to the China People’s Political Consultative Conference (CPPCC), the top advisory body to the nation’s legislature. He specialized in project planning and management, including site selection and product positioning, according to R&F’s listing prospectus in 2005.

The developer quickly grew into the largest builder of apartments, shopping centres and office buildings in the province.

R&F shot to fame in 2017 when its chairman Li emerged as the 11th-hour white knight in the bailout of Dalian Wanda Group, which was under the Chinese regulators’ scrutiny for its highly leveraged asset shopping spree.

Wanda unloaded 77 hotels for 19.9 billion yuan (US$3 billion) on R&F, part of a US$9.3 billion garage sale that still stands as the largest real estate deal in China.

Less than four years later, it was R&F’s turn under the regulatory spotlight when it ran afoul of China’s so-called three red lines of debt limits.

It has since been trying to dispose of its assets to avert its collapse from debt. R&F sold 30 per cent of the Guangzhou International Airport R&F Integrated Logistics Park for 7.3 billion yuan last December. It sold the Vauxhall Square parcel of land in London for £95.7 million (US$113.6 million) in March at a discount of about 42 per cent to market valuation.

In July, R&F regrouped all 10 tranches of its offshore bonds with US$4.94 billion in combined principal amount due by 2024 into three amortisation notes that mature in 2025, 2027 and 2028, becoming the first distressed Chinese developer to successfully restructure its offshore debts.

The company is in the process of selling the R&F Princess Cove project in southern Malaysia’s Johor Baharu city, and the London ONE project. R&F said it would use the proceeds of these disposals to partially refinance its offshore bonds.
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