Midea Real Estate Self-Discloses 650 Million Yuan Trust Commissioned Investment Irregularities

(Source: Economic Information Daily)

On the eve of the annual report disclosure by Hong Kong-listed companies, Midea Real Estate Holdings Limited (referred to as “Midea Real Estate,” 3990.HK) disclosed a compliance violation related to a trust entrusted investment in 2025. Its 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. This transaction did not comply with Hong Kong Stock Exchange listing rules and constitutes a related-party transaction that must be disclosed and is not exempt.

The announcement shows that by the end of 2024, Midea Real Estate’s cash and cash equivalents were approximately 1.034 billion yuan. To better utilize funds and earn interest income 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, as trustees, 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 into the trust, respectively.

According to the agreements, the three trust institutions, as lenders, issued four rounds of unsecured, demandable loans to Shenyang Zhenghui, Nanhai Meiming, and Shunde Tianmei throughout 2025 to supplement their general operating funds. The maximum outstanding loan amount at any time did not exceed 650 million yuan.

The company stated that Shenyang Zhenghui is 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 wholly owned subsidiaries indirectly controlled by Lu Deyan. All three are related parties of the company, so the transactions constitute 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 compliance 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.

Regarding the reasons for the violation, Midea Real Estate’s directors believe that the failure to comply with listing rules was mainly due to communication errors within the company’s internal departments. The business team approved and carried out the transactions but did not notify the compliance team that some arrangements might involve related parties or impact financial support under listing rules. The compliance team only verified that the counterparties of the entrusted investment agreements were independent third parties and did not identify potential indirect relatedness or the financial support consequences of such investments through entrusted arrangements. This gap in information transmission and review led to the failure to identify and comply with relevant listing rules and to obtain independent shareholder approval.

In recent years, affected by continuous losses in the real estate sector, many property developers have chosen to divest related development businesses from their listed platforms. Midea Real Estate completed a strategic restructuring on October 22, 2024, separating its real estate development and sales business from the listed entity.

“After the restructuring, Midea Real Estate’s revenue is about 3.7 billion yuan, net profit approximately 500 million yuan, and cash on hand about 1 billion yuan. Meanwhile, the three trust companies provided multiple rounds of loans to related projects, with a peak total of 650 million yuan,” said an industry analyst. This indicates that at a certain point, more than 60% of the company’s funds were channeled through trusts to the developer business still operated by the major shareholder.

In response to this violation, Midea Real Estate explicitly stated in the announcement that the company had no intention of concealing transaction information and quickly formulated remedial measures: engaging internal monitoring consultants to comprehensively identify related-party transactions and disclosure gaps related to entrusted investments, improve internal control systems, and fill the information gaps between business and compliance departments; issuing detailed operational guidelines to relevant employees to strengthen their understanding of entrusted investments, wealth management products, and related listing rules, enhancing their risk identification capabilities; maintaining close cooperation with professional consultants to ensure compliance throughout the process when conducting entrusted investments and cross-institutional transactions, including timely consultation and verification.