In the previous update, the Linyi Court affirmed that Shandong Hongri must complete soil pollution remediation of the relevant Shandong land before the LuoZhuang District Government can proceed with land acquisition.
1) Update on the follow-up actions of Shandong Hongri
· On 18 November 2025, Century Sunshine (CENSUN) stated that all of Shandong Hongri’s industrial land had been included in the LuoZhuang District Government’s Relocation to Parks from City Plan for land-use rights conversion, and that the LuoZhuang District Government and Shandong Hongri had entered into a relocation agreement in this regard.
· On 2 February 2026, CENSUN issued a further announcement stating that Shandong Hongri had applied to the Linyi Municipal Government for an administrative review, requesting an order compelling the LuoZhuang District Government to perform its obligations under the Relocation to Parks agreement.
· Shandong Hongri escalated the matter to the Shandong High People’s Court, which issued a ruling confirming that the relocation agreement is legal and valid. However, the court held that soil remediation constitutes a prerequisite that must be completed before the agreement can be fulfilled, without specifying the precise procedures or standards required.
· In order to comply with the ruling and facilitate progress of the project, Shandong Hongri formally requested that the LuoZhuang District Government clarify the soil remediation process, standards, and implementation requirements, and stated that it would carry out remediation once clear guidance was provided.
· The LuoZhuang District Government did not provide a clear written response. Instead, it subsequently issued a notice unilaterally terminating the relocation agreement, alleging that Shandong Hongri had failed to carry out soil remediation. Shandong Hongri disputes this action, arguing that the termination was procedurally unfair, lacked legal basis, and violated due process, as no remediation standards or instructions had been provided.
· In response to the termination, Shandong Hongri submitted another administrative review application to the Linyi Municipal Government, requesting that the termination notice to be revoked, the termination to be declared illegal, and the LuoZhuang District Government to be ordered to continue performing its obligations under the relocation agreement. Shandong Hongri has also requested the convening of a formal hearing. Separately, notwithstanding the court’s ruling on the prerequisite, Shandong Hongri maintains that land acquisition and conversion are fundamentally government-led processes and has sought further legal advice and applied to the Supreme People’s Court of the People’s Republic of China for a retrial of the Shandong court’s ruling.
2) Update on the Auction initiated by one of the creditors
· Meanwhile, creditors have taken enforcement action. China Cinda Asset Management Corporation, a creditor of Shandong Hongri, obtained an execution ruling from the LuoZhuang District People’s Court of Linyi City to auction part of Shandong Hongri’s land-use rights, on the basis that the district government had failed to complete land acquisition under the relocation policy. Shandong Hongri objected to the auction and applied to the court to revoke the execution ruling and stay the auction proceedings; however, the auction has been scheduled for 16 February 2026 (CNY Eve), with an overall appraised value of RMB182.6 million and an initial reserve price of RMB127.8 million.
· Shandong Hongri disputes the valuation adopted for the auction, arguing that the land has been incorrectly valued as industrial land, rather than land intended for commercial use under the applicable relocation and territorial planning policies. The company contends that this misclassification materially undervalues the land, violates planning principles, and results in a valuation significantly below fair market value, thereby materially harming the interests of the company, its shareholders, and its creditors.
· At present, the conditions for conducting the auction are not yet mature. Proceeding with the auction prematurely would risk significant asset impairment, undermine the fairness of the enforcement process, and potentially have a material adverse impact on the performance and implementation of the relocation agreement.
· Shandong Hongri has applied to the LuoZhuang District Court to postpone the auction. As of date of announcement, Shangdong Hongri has not any response.
Our view
Given the above developments, the base case is likely delay in in the land sale given the ongoing dispute with the LuoZhuang District Government. We expect the administrative review applied by Shandong Hongri to lengthen the process. We do not discount further countermeasures by the government which in doing so, may lengthened the process as well.
In our view, the best case would be the Linyi Municipal Government to intervene and revoke the termination of the relocation agreement and instruct the LuoZhuang District Government to clarify the soil remediation standards and resume the performance of its administrative obligations. This may mitigate the need for further administrative review/ countermeasures which can prevent the process from dragging out.
Nevertheless, the worst case is the process dragging out and the courts would proceed with enforcement despite unresolved zoning and remediation issues. The land-use rights would be auctioned as industrial land, resulting in substantial undervaluation, and recovery prospects for offshore creditors would be materially diminished.
Scheduling the auction for CNY Eve seems like a tactical move to force a quick ‘fire sale’. This suggests the government may be aiming to expedite the transfer of the land to other companies that are financially sound.
At this stage, we are still waiting for further updates. Should there be any material information, we will keep our investors informed.
