Seazen Holdings' chairman held in criminal custody for 'personal reasons'

A black swan seemed to be looming in front of the property empire Seazen Holdings soon after its chairman was detained on suspicion of molesting a nine-year-old girl.

The Putuo branch of the Shanghai Public Security Bureau said in a notice on Wednesday night that a 57-year-old suspect surnamed Wang was accused of molesting a girl on June 30. The suspect has been held in criminal custody by Putuo police.

The A-share listed Seazen said in an exchange filing late on Wednesday that its chairman Wang Zhenhua - the company's actual controller - has been held in criminal custody for "personal reasons".

The scandal was first reported by the Shanghai newspaper Xinmin Evening News on Wednesday afternoon and instantly went viral on the internet. The two Hong Kong listed subsidiaries, Future Land Development Holdings Ltd, plunged by 23.86 percent and S-Enjoy Service Group shed 23.72 percent during the last hour of trading on Wednesday. Seazen Holdings was unaffected since the A-share market closed earlier.

But the fluke did not last long. Future Land's price dropped by the daily limit of 10 percent soon after the market started trading on Thursday. Future Land and S-Enjoy continued to report 10.57 percent and 13.11 percent slide respectively. With that, the Seazen companies have lost 30 billion yuan ($4.4 billion) within two days.

The company's related bonds were also heavily hit. Its two bonds issued at the Shanghai Stock Exchange both dropped more than 8 percent on Thursday. Its US dollar bond due by 2023 shed a 27 percent on Wednesday, hitting a record high.

Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution, said that the scandal of Wang molesting a girl can be defined as a black swan incident for the company. It has made a huge contrast to the steadily advancing business of the company over the past two years. It will be a harsh task for the company to retain its corporate image, he said.

Seazen was founded in Changzhou, Jiangsu province, in 1993. Gauged by sales revenue, Seazen entered China's Top 10 developers list compiled by real estate market tracker CRIC for the first time in 2018. Its turnover surged 74.8 percent to 221.1 billion yuan last year.

But the rapid expansion has resulted in Seazen's high debt level. According to the company's 2018 fiscal report, Seazen's total liabilities came at 279.4 billion yuan. Its asset liability ratio soared to 88.51 percent by the end of first quarter.

Seazen immediately appointed 32-year-old Wang Xiaosong, the scandal-hit chairman's only son, as the new chairman. The son started his career at Seazen in 2009 but resigned in 2016. But he returned as president of the company last August after his father stepped down from the post.

Hui Jianqiang, head of research with Beijing Zhongfang-Yanxie Technology Service Ltd, suggested to the new chairman that apologies should be made to the victim in public.

He also warned that the stock market plunge in the past two day is "just the prelude of greater losses. Seazen is likely to see more sells in coming days, and its financing, sales and partnership will feel the pinch of this incident, which poses a big challenge for the new head."