HONG KONG—Protesters in Hong Kong have been calling for chief executive CY Leung’s resignation for weeks now, and his overall popularity ratings have slipped considerably. But Beijing has been supporting him wholeheartedly, even after it was made public he pocketed a secret $6.4 million payment to support a takeover bid of a failing property company.
That support could be tested again, though—the winning bid appears to have come at the expense of a Chinese state-owned developer.
The Sydney Morning Herald last week uncovered a $6.4 million payment Leung received from UGL, an Australian engineering firm that agreed to buy failing DTZ Holdings, where Leung was Asia-Pacific director, before he took office. Today, the Herald reported that the payment agreement was signed on the same day that a Chinese-government owned company made an even higher bid for DTZ. If the allegations are true, they suggest Leung was enriched at the same time a Chinese state-owned company was rebuffed. That could call into question the depth of his loyalty to Beijing, which recently insisted that a leader of Hong Kong also “love” China.
Michael Yu, Leung’s spokesman, told Quartz, “The decision to sell DTZ was a decision made by DTZ board of directors.” Leung announced his resignation from his post at DTZ on November 24, which went into effect Dec. 4, according to a previous statement in which he also acknowledged he received the payment. “DTZ played a significant role in initiating and negotiating the terms of the ‘resignation’ agreement that Mr Leung entered with UGL,” he said.
Tianjin Innovation Financial Investment’s (TIFI) bid was worth about £100 million ($160 million) more than UGL’s. “We felt we had a better offer,” one banker told the Australian paper. “It was very frustrating at the time.” UGL bought DTZ for £77.5 million—not including the fee paid to Leung—and is now in the process of selling it and other assets to to US private equity firm TPG Capital for about $1 billion.
TIFI is a Chinese state-owned enterprise tasked with setting up a massive financial center in Tianjin, a metropolis east of Beijing, with over 20 billion yuan ($3.26 billion) in assets and “privileged access to funding from the Central Government and commercial lending,” according to an undated Chinese government briefing memo.
Tianjin’s top politician at the time was Zhang Gaoli, who promoted rapid growth in the area. He has since been promoted to the seven-member Politburo Standing Committee, which effectively runs the entire country. Zhang is tasked with finance and economic development, among other responsibilities.
Citing an “administrator’s report, compiled by accounting firm Ernst & Young in London,” the Sydney Morning Herald said Tianjin’s bid was made Dec. 2, 2011—the same day a contract was written with Leung for the $6.4 million payment. As Quartz analyzed earlier, Leung agreed in the contract to “support the acquisition of the DTZ group by UGL,” among other requirements:
Tianjin’s bid was reported back in 2012 by the London Telegraph. At the time, UGL’s purchase of DTZ was under fire in the UK because DTZ’s creditors, including Royal Bank of Scotland, were going to be wiped out by the deal. But the secret payment to Leung was not known. The Telegraph reported:
“DTZ sacrificed value to get the deal with UGL done,” said one person close to the Chinese bidder. “The Chinese offer was significantly better for everyone, for the employees, the shareholders and the creditors”.
Leung was sworn in as Hong Kong chief executive in July 2012, before two payments totaling $6.4 million were made but not disclosed. Hong Kong opposition parties filed a complaint about the payments to Hong Kong’s anti-corruption body last week. Now China’s top officials may have some additional questions of their own.