Evergrande Delays Results as Banks Seize $2 Billion From Unit
Developer says ‘major incident’ at Evergrande Property Services will be investigated
Banks have unexpectedly taken control of more than $2 billion held by one of China Evergrande EGRNF -7.19% Group’s key subsidiaries, as the embattled property developer said neither it nor its main listed units could meet an imminent deadline to publish their annual results.
The move by lenders adds fresh uncertainty to Evergrande’s restructuring. Global bondholders view its two big Hong Kong-listed subsidiaries, which focus on property management and car making, as important sources of potential value for international creditors.
Evergrande Property Services Ltd. 6666 2.68% said lenders had enforced their rights over some 13.4 billion yuan, or $2.1 billion, of bank deposits. It said these had been offered “as security for third party pledge guarantees,” suggesting the cash was backing debts taken on by another borrower.
Evergrande said this was a “major incident” that came to light during a review of the property-services subsidiary’s annual financial report, and would be probed by independent investigation committees at both companies.
Hidden debt has proved a problem for China’s property sector. Investors have been caught out by off-balance-sheet liabilities that weren’t previously disclosed to investors or credit-rating companies, such as guarantees on wealth-management products or private loans.
Evergrande, Evergrande Property Services and China Evergrande New Energy Vehicle Group Ltd. 708 12.82% all said Tuesday that “a large number of additional audit procedures” and the pandemic meant they couldn’t publish annual audited results by March 31, as required in Hong Kong.
All three companies had halted trading in their shares before the market opened on Monday. Exchange rules meant their stock would likely remain suspended until the results were published, the trio said 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 some offshore debt in December, it said in January that it aimed to release a global restructuring plan within six months. The company has convened a bondholder call Tuesday to provide an update on its plan, according to people familiar with the matter.
With the broader property industry in crisis, other developers have also delayed the release of financial information. Ronshine China Holdings Ltd. said Monday the audit work for its annual results wouldn’t be completed on time after its auditor PricewaterhouseCoopers resigned.
Shimao Group Holdings Ltd. said Monday it expects a delay because of disruptions caused by Covid-19 and 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 begun an investigation of PwC’s audit and an inquiry into Evergrande’s recent accounts.
Separately Tuesday, Evergrande said it had hired the law firm King & Wood Mallesons to bolster its advisory team. It is already working with institutions including Houlihan Lokey Inc., Hong Kong-based Admiralty Harbour Capital Ltd., China International Capital Corp. , BOCI Asia Ltd. and Zhong Lun Law Firm LLP.