Rare! Listed Company Self-Discloses Violations, Involving 3 Trust Companies

Recently, Midea Real Estate disclosed a compliance violation related to a trust entrusted investment event in 2025. The company’s subsidiaries issued a total of up to 650 million yuan in loans to related parties of the controlling shareholder through Wanxiang Trust, Yuecai Trust, and Zhongyuan Trust. Due to internal communication errors and lack of internal control checks within Midea Real Estate, the related-party nature of the transactions was not identified, and the company failed to comply with Hong Kong Stock Exchange listing rules, constituting a non-exempt related-party transaction that required disclosure.

It is reported that the principal and interest of the involved loans were fully repaid before December 31, 2025, and the entrusted investment agreements were terminated, resulting in no actual fund losses.

Aiming to improve capital utilization

As of the end of 2024, Midea Real Estate held approximately 1.034 billion yuan in cash and cash equivalents. To better utilize funds and earn interest higher than typical bank deposits, the company engaged in entrusted investment transactions.

From January to December 2025, Midea Real Estate’s wholly owned subsidiaries, Foshan Mezhi and Guangdong Mezhi, acted as entrusters and entered into entrusted investment agreements with Wanxiang Trust, Yuecai Trust, and Zhongyuan Trust. The maximum investment limits for the three agreements were 500 million yuan, 250 million yuan, and 1 billion yuan, respectively, with reference annualized net returns of 3.85%, 3.20%, and 3.20%. The entrusted periods were 36 months from the first deposit into the trust, 24 months from the agreement date, and 36 months from the first deposit, respectively.

During this period, the trustees provided multiple rounds of unsecured, repayable loans to Shenyang Zhenghui, Nanhai Meiming, and Shunde Tianmei based on the entrusted investment arrangements, used to supplement the general operating funds of the borrowers. At any time, the maximum outstanding loan amount did not exceed 650 million yuan. As of December 31, 2025, all principal and accrued interest under these transactions were fully repaid, and all entrusted investment agreements were terminated.

The company stated that Shenyang Zhenghui was 50% owned indirectly by Shenyang Meiyi, which is wholly owned by the company’s controlling shareholder Lu Deyan. Nanhai Meiming and Shunde Tianmei are also indirectly wholly owned subsidiaries of Lu Deyan. All three are related parties of the company, making these transactions related-party transactions. After consolidation, the highest applicable percentage ratio exceeded 5% but was less than 25%, requiring disclosure and non-exempt related-party transaction procedures under listing rules, including reporting, announcement, circulars, and independent shareholder approval. However, the company did not comply with these requirements nor obtain independent shareholder approval when conducting the transactions.

Self-Inspection Findings

In early 2026, Midea’s risk management and internal audit departments conducted their annual internal monitoring review to assess the group’s risk management and internal control systems. During the review, it was found that the entrusted investment transactions involved flows to related parties. Under the instructions of the audit committee chair, the risk management and internal audit departments conducted a comprehensive review on March 11, 2026, and reported to the board on March 13, 2026.

The group believes that among 14 similar transactions (excluding the transaction matters), no other financial support was provided to any related parties in 2025. As of December 31, 2025, all outstanding principal and accrued interest under these transactions had been fully repaid, and all entrusted investment agreements had been terminated.

Root Cause Analysis and Remedial Measures

The company also reflected on the reasons for the errors.

The announcement states that after the group completed its restructuring and divestment of its real estate development business in October 2024, it significantly improved its financial ratios and liquidity, generating substantial cash surplus. Starting in 2025, as part of its cash management, the group began to increase investments in entrusted investments and exploration in this area, although its prior experience was limited. The existing internal monitoring framework was designed based on the group’s previous business model and was not adequately adjusted to address the specific regulatory risks associated with entrusted investment arrangements.

The directors believe that the main reason for non-compliance with listing rules was due to communication failures within the group’s internal departments. The business team approved and executed these transactions but did not notify the compliance team that some arrangements might involve related parties or impact financial support disclosures under listing rules. As a result, the compliance team only verified that the counterparties of the entrusted investment agreements were independent third parties, without identifying potential indirect related-party connections or the financial support implications of investments through entrusted arrangements. This gap in information transmission and review led to the failure to recognize and comply with relevant listing rules and to obtain independent shareholder approval.

To prevent future violations, the company will implement three remedial measures: first, engage internal control consultants to identify deficiencies in internal control policies and suggest improvements; second, provide more detailed operational guidance to relevant staff to enhance their ability to identify related transactions; third, maintain closer cooperation with professional advisors to ensure compliance with regulatory and listing requirements.

Proofread: Gao Yuan