Big Four Bank Sues Son of Major Retailer Over Soccer Club Debts
China Construction Bank (Asia) alleges Inter Milan president refuses to repay debt of over US$300 million
By: Toh Han Shih
One of China’s biggest state-owned banks is squaring off against Steven Zhang, the scion of one of China’s biggest private retailers, the troubled Suning.com, over his alleged refusal to repay more than US$300 million he borrowed. The 32-year-old Zhang is president of Inter Milan, one of Italy’s most prominent soccer clubs.
China Construction Bank (Asia) Corporation (CCBA) alleges Zhang, the son of Zhang Jindong who founded the Shenzhen-listed Suning.com, is refusing to repay more than US$300 million which it owes the bank, and is seeking to have Steven Zhang found in contempt of a Hong Kong court for lies which he allegedly told the court. Inter Milan was ranked the 14th most valuable football club in the world and the second most valuable in Italy with a value of US$743 million by Forbes in 2021.
CCBA is seeking to obtain information on the relations between Inter Milan and Zhang from major Western financial institutions like Goldman Sachs and Oaktree Capital Management. It has commenced legal proceedings in Italy and Hong Kong to collect what it is owed, and a debtor examination of Zhang is scheduled to take place in a Hong Kong court on March 13, said a memorandum filed in the US District Court for the Southern District of New York on January 19.
CCBA is a subsidiary of China Construction Bank, one of the Big Four Chinese state-owned banks.
“Outside of China, the Suning Group is perhaps best known for acquiring a 70 percent stake in F.C. Internazionale Milano S.p.A (“Inter Milan”), an Italian soccer team with a worldwide following based in Milan,” said the memorandum.
Zhang became president of the club in 2018, two years after Suning purchased the majority stake for US$307 million in 2016. According to his Twitter account, Zhang currently lives in Lombardy, the northern Italian region whose capital is Milan.
“Zhang’s social media accounts display the immense wealth at his disposal, including photographs of at least three luxury sports cars with a total value exceeding US$8 million, as well as luxury watches with a total value of close to US$1.5 million,” said the memorandum filed in the US court. “Moreover, Zhang has allegedly conducted his financial affairs so that few assets are owned directly in his name—despite his ostentatious displays of wealth—in order to hinder his creditors.”
In July 2017, Chinese state broadcaster CCTV, the government’s mouthpiece, criticized Suning for purchasing Inter Milan, portraying the deal as a financially risky and irrational foreign acquisition.
“Most of these companies have high debt ratios domestically, but they borrow money from banks to squander abroad or to buy assets,” Yin Zhongli, researcher at the Chinese Academy of Social Sciences’ Financial Research Institute, told CCTV about Suning’s purchase. “If there’s an error with foreign investment, it adds risk for domestic banks and the financial system, while the companies dress themselves in gold.”
Now CCBA is suffering the consequences of Suning’s purchase of Inter Milan. It has asked the US court for permission to serve subpoenas to several financial institutions with offices in New York, including Goldman Sachs, Oaktree Capital Management, and Bain Capital, the memorandum disclosed. CCBA is seeking information from these financial institutions because the bank believes they are likely to have information on Inter Milan and its relation with Steven Zhang and Suning Group, the memorandum explained.
Zhang has engaged financial advisers to explore a potential sale of Inter Milan. According to media reports, he is working with Goldman Sachs and Raine Group to search for a buyer. The potential proceeds from the sale may be used to repay a US$336 million loan that Suning borrowed from Oaktree Capital Management Group in May 2021 to assist Inter Milan, as reported by Forbes. Before entering into the transaction with Oaktree, Zhang discussed similar financing with Bain Capital, according to media reports.
In mid-January, an Italian newspaper, Gazzetta dello Sport, reported that Zhang was in Saudi Arabia seeking minority investments in Inter Milan. On October 28, 2022, Bloomberg reported Zhang as saying Inter Milan was not for sale, contradicting earlier media reports that he was seeking to sell the Italian soccer club for as much as US$1.3 billion.
Zhang owned a company that borrowed money from CCBA in 2020 to refinance debts it had incurred in 2019, when he acquired 65 percent of a Chinese firm which runs thousands of convenience stores in China for US$108.9 million. The acquisition was refinanced in 2020 by a US$165 million loan and US$85 million of notes that were due to be repaid to CCBA in 2021. Zhang personally guaranteed the debts, but refused to repay them, CCBA alleges.
The failure to repay these debts was sparked by several defaults. Suning.com defaulted on bank loans totaling US$1.7 billion, according to its financial statements on May 12, 2021. On June 4, 2021, two related companies, Suning Appliance and Suning Zhiye Group, as well as Zhang Jindong were named as debtors in Chinese judicial proceedings, which constituted another event of default.
Suning.com has been in the red since the second half of 2020 after the Chinese retail giant’s debts were reported to exceed RMB100 billion (US$14.8 billion). In July 2021, the firm sold almost 17 percent of its shares to a group of investors including a local Chinese government-backed fund, Chinese e-commerce giant Alibaba, and smartphone giant Xiaomi. After the transaction, Zhang Jindong lost control of Suning.com.
When Suning Appliance, Steven Zhang, and his father Zhang Jindong failed to repay the debts as demanded by CCBA, the bank filed a writ of summons against Steven Zhang in Hong Kong’s Court of First Instance on August 2, 2021. About three months later, CCBA applied to the Hong Kong court for summary judgment against Zhang, who opposed the summary judgment application. Zhang argued that he was not involved in and was not aware of the refinancing transactions and said his signatures on the debt agreements were forged.
A Hong Kong judge, Anthony Chan, rejected Zhang’s arguments and granted summary judgment in favor of CCBA against Zhang on July 19, 2022. Justice Chan explained, “I am unable to accept that Zhang has shown a believable defense of forgery. His evidence, assessed against the undisputed background circumstances, is contrary to inherent probabilities and common sense, and his explanations on various evidential fragilities ring hollow.”
Justice Chan ordered Zhang to pay US US$255 million plus interest to CCBA.
CCBA said it plans to apply to have Zhang committed for contempt of the Hong Kong court due to his false sworn statements in the proceedings leading to the Hong Kong judgment.
Italian legal action
CCBA commenced legal action in Italy on July 8, 2022 to render ineffective a shareholder resolution by Inter Milan, with the aim of regaining part of its debt.
“Zhang serves as the President of a prominent Italian soccer team – Inter Milan FC – under a highly unusual shareholder’s resolution of appointment that eschews any direct compensation for Zhang’s services,” said the memorandum.
CCBA alleged in a pending legal action that Zhang appears to have structured his appointment terms so as to hinder creditors from getting hold of his salary.
As alleged in CCBA’s legal proceedings in Italy, Inter Milan waived salary payments to Zhang, which under Italian law constitutes a “gratuitous act having economic value” that affects Zhang’s property interests and his ability to satisfy the debt owed to CCBA.
Inter Milan did not respond to Asia Sentinel’s questions.
Toh Han Shih is chief analyst of Headland Intelligence, a Hong Kong risk consultancy.