China Evergrande Group’s (恆大集團) property services unit is investigating how 13.4 billion yuan (US$2.1 billion) of its deposits were used as security for pledge guarantees and seized by banks.
The unusual development, which Evergrande Property Services Group Ltd (恒大物業) said it discovered while preparing its annual report, might heighten scrutiny of corporate governance at the real-estate empire founded by billionaire Hui Ka Yan (許家印).
While Evergrande’s main property business has been in financial distress for months, the services unit has long been considered among the stronger parts of Hui’s group. Evergrande and its Hong Kong-listed units also warned of delays in the release of audited financial results.
Photo: Chan Long Hei, Bloomberg
“It was found that deposits of approximately 13.4 billion yuan as security for third-party pledge guarantees had been enforced by the relevant banks,” Evergrande Property Services said in a statement to the Hong Kong stock exchange, without providing details on the pledge, the third party or the lenders. “The company will establish an independent investigation committee and arrange for experts to be appointed to investigate the pledge guarantees.”
In a separate statement, Evergrande said it considers the matter to be a “major incident” and would assess the implications for the company.
Shares of Evergrande and its units have been suspended in Hong Kong since Monday.
The financial statements of Chinese property companies are coming under increased scrutiny as they prepare their first annual reports in the wake of credit-market turmoil that triggered a record wave of defaults.
“The announcement suggests Evergrande Property Services had offered a third-party guarantee to banks which had lent money to another borrower,” said Travis Lundy, a special situations analyst who publishes on Smartkarma.
Evergrande and its financial advisers were to hold an investor call yesterday, said two investors who received the invitation and asked not to be identified discussing private information.
The firm did not immediately have a comment when reached by Bloomberg.
Bondholders are closely watching Evergrande, the world’s most indebted developer with more than US$300 billion in liabilities, after it defaulted on US-dollar bond payments in December last year.
The firm’s debt restructuring is expected to be among China’s largest and most complex.
The builder told creditors in January that it aimed to issue a preliminary restructuring plan in the subsequent six months.
Other beleaguered developers Sunac China Holdings Ltd (融創中國控股) and Shimao Group Holdings Ltd (世茂集團) also flagged potential delays in releasing audited results for last year.
PricewaterhouseCoopers LLC is the auditor for the two companies and Evergrande.
Also, Evergrande announced plans to appoint King & Wood Mallesons as an additional legal adviser to handle debt risks.
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