Introduction

As an investor in Xinyuan (XIN), I have been following the company closely. So when the opportunity arose to meet with George Liu, Chief Financial Officer and May Shen, Investor Relations Director, I took it. The meeting was held at XIN’s mid-town Manhattan office on September 15^th. In what follows, I summarize XIN’s 2^nd quarter results and report on my interview.

2^nd Quarter Results

We hear daily about economic problems in China – growth rates falling and stock markets crashing. Despite this, XIN’s 2^ndquarter was quite positive: Sales, income and property under development were all up in comparison to the second quarter of last year. And overall, it appears that XIN has done a pretty good job in holding the line on prices – up 14% from the 2^nd quarter in 2014 and down 7% from the 1^st quarter in 2015.

These results are a testament to the fact that XIN sells most of its properties to China’s rapidly expanding middle class. And this huge group will want to upgrade their housing as their incomes grow. And keep in mind that while the Chinese GDP growth rate is down, it still exceeds 6%.

Interview with XIN Management

The following provides details on the interview. It was not recorded but I took notes and gave George and May the opportunity to correct factual errors. My questions/comments are identified by EM. George Liu’s responses/comments are identified by GL.

EM: In 2014, XIN reported 180,094,704 diluted shares. This year, XIN reports only 147,238,151 shares. What is the reason for this reduction?

GL: It is mainly due to the company’s repayment of TPG’s convertible bond of $75.8 million, equivalent to 25,253,670 common shares had the conversion been made.

EM: Some Western observers allege that XIN does not care about its stockholders. Who are the largest stockholders in XIN?

GL: Yong Zhang, XIN’s founder and chairman holds about 36 of the shares. TPG is the second largest with about 8% of the shares. Senior staff get stock options for exceptional performance. All will significantly benefit from a higher share price.

EM: Aside from being a large stockholder, does TPG have any remaining role in XIN?

GL: Yes. TPG has a seat on the Board of Directors. In addition, TPG has a vote on the important 4-person Investment Committee. When it comes to new investments, TPG tends to be conservative.

EM: The following table shows changes in revenues and expenses (mil.US$) between 2012 and 2014. The revenues are quite similar, but there are large increases in the costs of real estate sales, selling and distribution, and SG&A expenses. Why have these costs grown so much?