Banks unexpectedly took control of more than $2 billion held by one of the main subsidiaries of the China Evergrande Group, as the struggling property developer said neither it nor its main listed units could meet a deadline impending deadline for publishing their annual results.
The lenders’ decision adds further uncertainty to Evergrande’s restructuring. Global bondholders view its two large Hong Kong-listed subsidiaries, which focus on property management and car manufacturing, as important sources of potential value for international creditors.
Evergrande Real Estate Services ltd.
said lenders had asserted their rights to some 13.4 billion yuan, or $2.1 billion, in bank deposits. He said these had been offered “as collateral for third-party pledge guarantees”, suggesting the money secured debts incurred by another borrower.
Evergrande said it was a “major incident” that came to light during a review of the real estate services subsidiary’s annual financial report and would be investigated by independent investigative committees from both companies.
Hidden debt has proven to be a problem for China’s property sector. Investors were caught off guard by off-balance sheet liabilities that were not previously disclosed to investors or rating companies, such as guarantees on wealth management products or private loans.
Evergrande, Evergrande Property Services and China Evergrande New Energy Vehicle Group ltd.
all said on Tuesday that “a large number of additional audit procedures” and the pandemic meant they could not release audited annual results by March 31, as required by Hong Kong.
All three companies had halted trading in their shares before the market opened on Monday. The exchange rules meant their shares would likely remain on hold until the results are released, the trio said on Tuesday.
Evergrande is China’s most indebted property developer, with the equivalent of more than $300 billion in liabilities as of June 2021. After defaulting on offshore debt in December, it said in January it had the intention to publish a global restructuring plan within six months. The company convened a call for bondholders on Tuesday to provide an update on its plan, according to people familiar with the matter.
With the entire real estate sector in crisis, other developers have also delayed releasing financial information. Ronshine China Holdings ltd.
said on Monday that the work of auditing its annual results would not be completed in time after the resignation of its auditor PricewaterhouseCoopers.
Shimao Holdings Group ltd.
said on Monday that it expects a delay due to disruption caused by Covid-19 and the slowness in obtaining third-party confirmations for its audit.
PricewaterhouseCoopers is also Evergrande’s auditor. In October, Hong Kong’s Financial Reporting Council said it had opened an investigation into PwC’s audit and an investigation into Evergrande’s recent accounts.
Separately on Tuesday, Evergrande said it had hired law firm King & Wood Mallesons to bolster its advisory team. He already works with institutions including Houlihan Lokey Inc.,
Admiralty Harbor Capital Ltd., based in Hong Kong, China International Capital Corp.
BOCI Asia Ltd. and Zhong Lun Law Firm LLP.
Write to Clarence Leong at email@example.com
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