For over two decades, the Dongzhimen project, a large-scale real estate complex development project in Beijing, has gained substantial attention due to its high-profile legal disputes. China Cinda Asset Management has successfully acquired the project and resolved many of its long-lasting legal issues. Cinda's General Counsel Lu Zhu talks about the process and significance of the ongoing Dongzhimen project.
ALB: What is the Dongzhimen project and why is it important?
Lu Zhu: The Dongzhimen project is a large-scale real estate complex development project with office, commercial, hotel and residential blocks. It was one of the key supporting projects of the 2008 Beijing Olympic Games. The project takes a land area of 90,000 square meters and a total construction area of 512,800 square meters.
Since the project’s beginning in 1994, three projects have been conducted, a number of developers have been changed, and the commencement of work has happened several times. In 2012, the project came to a complete stop. Years of equity disputes eventually led to the project becoming the core area of landmark buildings in Beijing, which for many years had been one of the real estate problems of the two levels of city government.
In 2015, our company acquired the Dongzhimen project through purchase, investment and other means with traditional bad assets and non-financial institutions. This move has major strategic significance for our company in terms of challenges and innovation, while helping the government to solve the many years of real estate problems and revitalizing relevant land assets with social significance.
ALB: What are some difficulties regarding the Dongzhimen project which require legal expertise?
Lu Zhu: The Dongzhimen project involves many complex and difficult issues that require legal expertise and experience to analyze and solve, including but not limited to the following.
The complexity that comes with multi-transactions. In the 20 plus years of the project, there has been several resales. In particular, former rights holders of Aptech and Guocoland designed a complex domestic and foreign transaction structure on the Dongzhimen project, and the equity dispute between the two sides has lasted about ten years. For Cinda, clarifying the project history and ownership, identifying legal risks and making accurate legal judgments, and putting forward effective risk responses are great challenges.
Uncertain outcomes. There are still a number of major litigation cases between Aptech and Guocoland that remain unsettled. The uncertainty of the outcome of the cases has brought significant challenges to the transaction of the project ownership and Cinda.
Different systems. The Dongzhimen project involves both domestic and foreign multi-storey companies, cross-border structure involved in the legal framework, tax programs, foreign exchange control is more complex, and rely on professional legal analysis and recommendations.
Bank claims and construction projects. The Dongzhimen project involves a number of bank claims, litigation cases and construction projects. The proper settlement of these issues and the convergence of the transaction itself are essential.
The clean-up. The Dongzhimen project involves dozens of tenants in the negotiation of the termination of contracts, as well as a number of project arrears and related litigation cases. The clean up and settlement of historical issues are complex.
Expired licenses due to long pause. The Dongzhimen project has paused for many years. There are legal procedures relevant to the discrepancies between the expiration of licenses and the actual construction.
ALB: China's legal landscape is changing very quickly. How does this affect the Dongzhimen project?
Lu Zhu: After more than 20 years, the Dongzhimen project has inevitably been subjected to the impact of changes in Chinese laws and regulations.
As an example, since Aptech and Guocoland transferred the Dongzhimen project in 2007 to now, the relevant laws and regulations of Chinese enterprises' overseas investment and foreign investment to China have constantly been updated and improved. This includes the simplification of investment approval procedures, decentralization of approval authority and adjustment of the foreign exchange policy. The Dongzhimen project also involves domestic and foreign legal structures, and is affecteted by laws and policies related to different historical periods.
Regulations regarding the planning, construction, environmental protection, fire, safety, acceptance and other aspects of the project have also gradually improved. As the Dongzhimen project has paused for many years, future work before and after the resumption of work will need to comply with the relevant laws and regulations.
ALB: Describe some of the legal challenges in the project that Cinda has already overcome.
Lu Zhu: We have already overcome several legal challenges.
There has been progress on historical disputes and pending litigation or arbitration cases relating to the ownership of the project.
With the strong support of legal professionals including the legal department at Cinda’s headquarters, Tianyuan Law Firm, An He Li Law Office and King & Capital Lawyers, the Supreme Court issued the No. 1284 administrative ruling by end-2015, rejecting Aptech’s appeal application and confirming the legal relationship of the Dongzhimen project, as well as validating our investment decision-making and legal judgment. In 2017, further court judgments have been issued to reject relevant demands from Aptech.
Cinda arranged legal, financial, auditing, tax and other professionals to conduct in-depth discussions on cross-border structure issues, and ultimately completed the overseas equity transaction with Guocoland, as well as domestic debt transactions with creditors, thereby completing the acquisition of the Dongzhimen project with proper compliance and consideration of the transaction convenience and costs.
Through negotiations with creditor financial institutions, Cinda successfully acquired all the institutions’ claims on companies in the Dongzhimen project, thereby resolving potential legal obstacles related to the project ownership and follow-up of the construction operations.
Cinda has completed the contract termination and evacuation of dozens of tenants through multiple negotiations and reached a consensus with relevant parties for the follow-up and resumption of the Dongzhimen project.
ALB: What are some milestones in the project? Describe some of the successes and results that Cinda has already achieved in the project.
Lu Zhu: We’ve achieved several milestones in the project, such as the following.
1994–2014: The Dongzhimen project has entered into transformation plans for over 20 years since 1994. It has been transferred to different hands many times, and the project had to stop until the end of the lawsuit caused by the Aptech and Guocoland transfer process that lasted for many years.
September 2014: After years of continuous attention to the project, Cinda was informed of the Hainan High Court’s final decision to award the Dongzhimen project equity to Guoco. Cinda then started negotiations with Guoco.
June 30, 2015: Cinda completed the acquisition of Ping An Bank’s claims in the Dongzhimen project before other investors, and also showed Guoco its determination to win the Dongzhimen project.
August 20, 2015: After difficult negotiations, Cinda reached an agreement with Guoco to acquire the Dongzhimen project with a total of RMB10.5 billion.
January 2016: Cinda acquired the final claim in the Dongjianmen project from China Construction Bank. At this point, Cinda had close to RMB10 billion in claims to firmly control the Dongzhimen project.
December 28, 2015: The Supreme Court issued the No. 1284 administrative ruling, rejecting Aptech’s appeal application and further confirming the legal relationship of the Dongzhimen project.
March 6, 2017: The Haikou Intermediate People 's Court issued a "civil verdict" which rejected Aptech’s demands in the civil case.
April 27, 2017: The China International Economic and Trade Arbitration Commission issued a decision to withdraw the case.
May 15, 2017: The Haikou Intermediate People 's Court issued an "administrative ruling" which rejected Aptech’s demands in the administrative case.