Evergrande unit discovers $2.9 billion of its cash can be seized by banks

Evergrande has been at the centre of a cash crisis among Chinese property developers since Beijing's crackdown. PHOTO: REUTERS

HONG KONG  (BLOOMBERG) -  China Evergrande Group’s property services unit said on Tuesday (March 22) it was investigating how 13.4 billion yuan (S$2.9 billion) of its deposits were used as security for pledge guarantees and enforced by banks. 

The unusual development, which Evergrande Property Services Group  said it discovered while preparing its annual report, may heighten scrutiny of corporate governance at the real estate empire founded by billionaire Hui Ka Yan. 

While Evergrande’s main property business has been in financial distress for months under the weight of US$300 billion (S$407 billion) in liabilities, the services unit has long been considered among the stronger parts of Mr Hui’s empire.

“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 will assess the implications on itself. 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. Evergrande joined several other developers this week to warn they will probably miss deadlines for reporting audited 2021 results this month. 

Meanwhile, Evergrande and its financial advisers will hold an investor call on Tuesday at 9pm Hong Kong time, according to two investors who received the invitation and asked not to be identified discussing private information.

Bond holders are closely watching Evergrande, the world’s most indebted developer, after it defaulted on dollar-bond payments in December. The firm’s debt restructuring is expected to be among China’s largest and most complex. The builder told creditors in January it aimed to issue a preliminary restructuring plan in the subsequent six months.

Evergrande tried to sell a 50.1 per cent stake in its property services unit to Guangdong-based Hopson Development Holdings for HK$20 billion (S$3.5 billion) when its credit crunch intensified last year, only for the talks to be scrapped in October. 

Long considered a cash cow for the group, Evergrande Property Services now has a market value of HK$24.9 billion, more than the parent company’s HK$21.8 billion.

The two companies along with Evergrande’s electric vehicle unit expect to miss the March 31 deadline for reporting earnings because audit work has not been completed, separate statements showed Tuesday. Evergrande cited “drastic changes” in the operating environment adding to audit procedures, along with disruptions from Covid-19. 

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