At the end of March, the Henglong Group annual Shareholders' Meeting was held in an atmosphere of imminent rain.
The panoramic conference hall on the top floor was packed with seats. Representatives of institutional investors looked cautious, small and medium-sized shareholders were whispering to each other, and the media's long-range cannons had already been set up in the back row.
The air was filled with not only solemnity, but also a sense of tension, waiting for confrontation.
Zhao Chen sits in the main seat, flanked by Zhang Qingxue and Liu Mingyu.
Su Wantang and Chen Xi attend the side rear.
Lin Wanqing, on the other hand, is sitting in front of the management seat, with exquisite makeup, back straight, and eyes calmly staring ahead, like a cold statue.
The meeting proceeds according to procedure.
Zhao Chen first used impeccable data to confess the company's mediocre performance in 2016 due to historical baggage.
Immediately, he changed the topic and forcefully launched the core strategy of "shrinking the balance sheet and reducing leverage."
"This is not just a stop-gap measure to deal with the current predicament,"
Zhao Chen's voice was decisive, trying to set the tone for the strategy,
"This is the fundamental method for Henglong's development in the next ten years or even a hundred years!
The carnival era of High Leverage is over. Stability and health are the most precious legacies we leave to the next generation of managers and shareholders!"
The logic of his argument is clear, but the words "low debt" still sound harsh to the ears of some people who are used to Real Estate Industry's furious thinking.
Before the applause had completely subsided, a middle-aged man with a shrewd temperament wearing gold-rimmed glasses raised his hand.
He is Li Mingda, the representative of "Haifeng Investment". As we all know, Haifeng has a long history of dealings with the funding channels controlled by Lin Wanqing.
"Chairman Zhao, the vision you painted is very beautiful."
Li Mingda took the microphone, his tone was neither urgent nor slow, but with a needle-like edge,
"But are you using an overly idealistic concept to cover up the reality that the company is currently lacking in ambition and even declining capabilities?
Debt expansion is a globally popular amplifier of Real Estate Industry, and it is the art of using other people's money to create wealth for oneself and shareholders.
You emphasize the risks, so is giving up eating because of choking the best solution?"
He paused for a moment, glanced at Minor Shareholder, who was present, and continued his offensive:
"What's more, the low-debt model you mentioned is not a mainstream survival rule even in United States, which you admire.
In China, the management of Vanke also proposed "shrinking the balance sheet and liquidating it" in the past two years, but the result? They are still expanding the balance sheet.
This shows that the mainstream opinion in the market is to rely on scale advantages to reduce Supply Chain costs and achieve expansion.
Henglong Is it going to go against the market? From an active industry participant to a conservative who only seeks to protect himself, will he eventually be left far behind by competitors who are more daring to think and do?
We invest in real estate stocks, focusing on their growth and explosiveness, not bonds!"
These words were extremely provocative. They first questioned the feasibility of the strategy and the courage of the management, and compared Zhao Chen's strategy to the doubtful attempts of its domestic peers.
Whispers began again in the venue, and new doubts appeared on the faces of many shareholders.
Lin Wanqing looked down at the table and moved the corner of his mouth almost imperceptibly.
Zhao Chen faced this expected but more acute challenge, but his expression became calmer.
He was not led into the opponent's emotional accusations about "aggressiveness", but like the most patient teacher, he was ready to use the most solid facts to dismantle the fallacies.
"Representative Li's question is very critical. It touches on a core misunderstanding: Does low debt mean no development or slow development?"
Zhao Chen raised his voice, and the electronic screen behind him switched in response, showing the logos of the two companies and the key Financial Data overview.
"On the contrary, I would like to ask you to take a look at how industry giants that have truly crossed the cycle and become evergreen do it."
"First, look at Lennar, one of the largest homebuilders in United States."
Zhao Chen points to the screen,
"The secret is not some High Leverage magic, but a very forward-looking 'light assets, heavy operations' strategy.
It will divest the land reserves and development links that occupy the most funds and have the highest risks through cooperation with professional REIT (REIT).
What does this mean?
This means that Lennar itself does not need to carry huge amounts of land assets and corresponding debts on its balance sheet, but can lock in land in a flexible Options way, focusing its capital and energy on the core aspects of residential construction, sales and customer service.
This model makes its asset turnover rate much higher than the traditional model. It has a strong ability to resist risks during the downturn of the industry, and can quickly seize opportunities during the upturn.
Its success has not only been verified by the market, but has also received huge investment and long-term holdings from Berkshire Hathaway Company, a subsidiary of the 'stock god' Buffett.
This in itself is the most powerful endorsement of the 'low debt, high value' model."
There was silence in the venue. It was the first time for many people to hear the operation mode of top international peers in such detail.