Guarantee overdue: Actual controller's 120 million shares frozen; Longyuan Construction reports three consecutive losses; state-owned capital private placement may be key to turning losses around

On March 6, Longyuan Construction Group Co., Ltd. (600491.SH) announced that the shares held by the company’s controlling shareholder, Lai Zhenyuan, have been frozen. The freeze is due to Lai Zhenyuan’s family providing a guarantee for a debt owed by Hangzhou Qingshan Lake Forest Silicon Valley Property Management Co., Ltd. (hereinafter referred to as “Silicon Valley Property”) to Zhejiang Merchants Bank Co., Ltd., Ningbo Branch, which remains unpaid upon maturity. Meanwhile, Longyuan Construction, which has reported losses for two consecutive years, is expected to achieve a net profit attributable to shareholders of approximately -1.5 billion to -1 billion yuan in 2025.

On the morning of March 10, a reporter from Huaxia Times contacted Longyuan Construction regarding the share freeze of the controlling shareholder, the company’s declining financial situation, and plans to turn losses into profits. The company responded that the share freeze was caused by the controlling shareholder’s family’s personal guarantee, which is a matter at the individual level and unrelated to the company. The guarantee was not made by the company. Longyuan Construction also admitted that, influenced by industry environment and internal operations, the company has indeed faced operational difficulties, including performance losses and liquidity issues in recent years. However, the company is actively seeking solutions and has initiated a private placement with Hangzhou Transportation Investment Group Co., Ltd. (hereinafter “Hangzhou JiaoTou Group”) to achieve state-owned capital control. Once the control transfer is completed, the company hopes to gradually improve its operational situation.

Controlling shareholder’s equity pledge rate nearly 100%

The announcement shows that Lai Zhenyuan’s judicial freeze involves 119.7 million shares, accounting for 7.82% of the total share capital. The freeze was requested by Zhejiang Merchants Bank Co., Ltd., Ningbo Branch, and is valid from March 5, 2026, to March 4, 2028.

Furthermore, the announcement states that Lai Zhenyuan holds 254,119,182 shares (unrestricted circulating shares), representing 16.61% of the total share capital. Of these, 253.9 million shares are pledged, accounting for 99.91% of his holdings. The family of the controlling shareholder (Lai Zhenyuan, Lai Zhaohui, Lai Yeyun) has pledged a total of 362.4 million shares, representing 99.78% of their current holdings and 23.69% of the company’s total share capital.

Regarding risks from share pledges and freezes, Longyuan Construction stated that as of the disclosure date (March 6), the risks associated with the controlling family’s pledges are within controllable limits, with no risk of forced liquidation. If the stock price fluctuates to the warning or margin call level, the actual controller’s family will actively respond, including but not limited to providing additional guarantees or early repayment.

“Controlling shareholders do not have non-operational capital occupation or illegal guarantees that harm the interests of the listed company,” Longyuan Construction emphasized. The Lai Zhenyuan family is actively negotiating with relevant parties regarding the share freeze. Aside from this debt guarantee, the family has no overdue debts with financial institutions. The company maintains independence from the controlling shareholders and actual controllers in assets, operations, and finances. These matters are unrelated to the listed company and will not adversely affect its production, operation, or governance, nor will they lead to a change in control.

The judicial freeze was caused by Lai Zhenyuan’s family providing a guarantee for Silicon Valley Property’s debt, which is overdue. According to the Tianyancha platform, judicial information shows that in case number “(2026) Zhe 0112 Zhi 545,” Silicon Valley Property was listed as a defendant by the Lian’an District People’s Court of Hangzhou on January 21 this year, with an enforced amount of 351 million yuan. The defendants include Lai Mou, Zheng Mou, Lai Mou 1, Wu Mou (full names undisclosed).

The platform also indicates that Silicon Valley Property was established in July 2012 and is wholly owned by Hangzhou Qingshan Lake Forest Silicon Valley Development Co., Ltd. (hereinafter “Silicon Valley Development”). According to previous disclosures, Silicon Valley Development was a subsidiary of Longyuan Construction. In March 2021, Longyuan Construction and its wholly owned subsidiary, Shiyumu Investment Consulting Co., Ltd., transferred 100% of Silicon Valley Development’s equity for no less than 624 million yuan to Ningbo Taoyi Enterprise Management Co., Ltd. (hereinafter “Ningbo Taoyi”), with the transaction price of 624 million yuan.

However, Longyuan Construction still maintains certain relations with Silicon Valley Development and is involved in some financial loan contract disputes. For example, in March 2025, the company and Lai Mou (name not disclosed) became defendants in a case filed by the Ningbo Branch of Shanghai Bank Co., Ltd., with the bank as plaintiff, demanding repayment of a principal loan of 25 million yuan, plus interest, penalty interest, compound interest, and other charges. The bank also has the right to prioritize claims on a mortgaged property owned by Silicon Valley Development in Lin’an District, Hangzhou, through discounting or auctioning.

It is also worth noting that this is not the first time Longyuan Construction’s family has faced share freezes due to overdue guarantees, reflecting ongoing risks associated with family guarantee behaviors.

For example, on December 12, 2025, Longyuan Construction announced that family members of the controlling shareholder Lai Zhaohui had a large number of shares judicially marked and frozen, including 83.2 million shares marked and 25.37 million shares frozen, totaling 109 million shares, representing 7.1% of the company’s total share capital. This was also due to guarantees for debts owed to Ningbo Taoyi Enterprise Management Co., Ltd., which remain unpaid.

Persistent losses hinder recovery

Behind the share freezes and high pledge ratios, Longyuan Construction’s performance has been under continuous pressure in recent years.

According to public data, Longyuan Construction was founded in 1980 and listed on the Shanghai Stock Exchange Main Board in 2004. It is one of the largest private construction enterprises in the Yangtze River Delta, holding multiple high-level qualifications including a Grade I general contracting license for housing construction. The company’s main businesses include general contracting, infrastructure investment, and green building, with key products such as civil construction, decoration and steel structures, water conservancy projects, and PPP investments.

Financial reports show that from 2020 to 2023, Longyuan Construction achieved revenues of 17.787 billion, 19.548 billion, 14.246 billion, and 9.004 billion yuan, respectively, with year-over-year changes of -16.99%, +9.9%, -27.12%, and -36.79%. Net profits were 809 million, 667 million, 380 million, and -1.311 billion yuan, respectively, with decreases of 20.75%, 17.51%, 43%, and 444.25%. In 2024, the company’s revenue was 9.119 billion yuan, up 1.27%, with a net loss attributable to shareholders of -663 million yuan.

In the first half of 2025, Longyuan Construction reported total revenue of 2.652 billion yuan and a net profit of 70 million yuan attributable to shareholders. However, this turnaround was not due to operational improvements but resulted from asset disposal gains related to the land and buildings of its subsidiary, Dadi Steel Structure.

Meanwhile, affected by macroeconomic downturns and intensified industry competition, the core business performance remains weak. In the first half of 2025, new orders amounted to 953 million yuan, down 38.63%; total revenue decreased by 46.39% to 2.652 billion yuan; and net profit after deducting non-recurring gains and losses was -165 million yuan, narrowing the loss by 33.41% year-over-year.

Looking at the full year of 2025, on January 5, Longyuan Construction announced that, based on preliminary calculations by the finance department, it expects a net profit attributable to shareholders of approximately -1.5 billion to -1 billion yuan for 2025, compared to -663 million yuan in the previous year. The net profit after deducting non-recurring gains and losses is expected to be between -1.9 billion and -1.4 billion yuan, compared to -741 million yuan last year, indicating an even larger loss.

Longyuan Construction stated that the main reason for the expected loss is the continued pressure on its construction business during the reporting period, with no recovery in new orders in 2025, leading to a significant decline in revenue, ongoing financial expenses, and asset impairments due to delayed receivables. As a result, the company will remain in a loss position for the year.

Regarding the ongoing decline in operations, on March 10, Longyuan Construction explained to Huaxia Times that “the company’s development is highly aligned with the overall trend of the (real estate) industry,” and current operational pressures are due both to the industry downturn and the limitations of private enterprises’ development.

Faced with persistent operational difficulties and equity risks, introducing state-owned capital has become a key strategy for Longyuan Construction to seek a breakthrough. “The company has disclosed its 2025 performance forecast, which indeed falls short of market expectations. Currently, the company is actively promoting a private placement with Hangzhou JiaoTou Group,” a company representative said.

As of mid-2025, the company received approval from the China Securities Regulatory Commission for the registration of a private placement of shares, and has begun related work. “Through strategic cooperation with Hangzhou JiaoTou Group, the company aims to quickly enhance its competitiveness in Zhejiang Province, especially in Hangzhou, increase market share, and establish a solid foundation for business development and market expansion,” the person added.

The private placement has not yet been completed. The company hopes that once state-owned capital becomes the controlling shareholder, it can leverage the resources and funding advantages of the state platform to gradually restore and improve operations. However, the representative also acknowledged that if the private placement fails or control cannot be transferred from a private enterprise to a state-owned entity, the company will still face certain operational and liquidity pressures.