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Chinese developer stocks suspended as earnings deadlines passed

Several major Chinese real estate stocks halted trading on Friday amid a spate of share suspensions for Hong Kong-listed companies unable to release full-year results on time.

The city’s exchange operator, Hong Kong Exchanges & Clearing GmbH.

388 -1.45%

, said 32 stocks were suspended for missing a reporting deadline in late March. The companies involved include major real estate companies such as Sunac China Holdings GmbH.

1918 -5.18%

China Aoyuan Group GmbH.

Holdings of the Shimao Group GmbH.

and Kaisa Group Holdings GmbH.

The city ordinance usually provides for suspensions if audited annual figures cannot be published by the end of March. Since 2020, however, the exchange has allowed stock trading to continue for at least another month if companies can show their financial reporting has been affected by pandemic-related restrictions and provided they can instead publish unaudited numbers by March 31.

Compiling full-year results for developers – after a severe downturn in China’s real estate market, a spate of auditor resignations and questions about hidden debt in the industry – has proved a challenge.

China Evergrande Group shares,

The sector heavyweight, which defaulted on offshore debt in December, has been suspended since March 21.

In some cases, company boards have chosen not to publish figures that have not since been audited by accounting firms. On Thursday, Aoyuan said it needed more time to assess possible writedowns and that its board believed releasing unaudited numbers “could potentially be misleading to shareholders and potential investors.”

ON March 21, Sunac said it would release results that had not been approved by an auditor, although a week later it backtracked, saying it needed more time to finalize the financial statements and that recent credit downgrades were affecting the would also have made the task more difficult.

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A Sunac project in Haiyan, China earlier this year.


Photo:

Qilai Shen/Bloomberg News

“If you’re a big, sprawling real estate empire, accountants have to go out and review assets because your most important assets are physical. So Covid is certainly a valid reason,” said Gillem Tulloch, founder of GMT Research, an accounting firm.

“But we have heard some companies cite Covid and yet in the same paragraph there have been comments about an inability to verify certain cash or financial assets. That’s a big red flag,” he said.

Of the 32 stocks suspended on Friday, 14 had delayed results for reasons related to Covid-19 but had not released unaudited results, a stock market spokesman said.

More than 10% of the exchange’s 1,860 listed companies have released unaudited figures to avoid a suspension this year, about half the figure for April 2020, the spokesman added. He said the exchange will work with companies to “keep the period of trading suspensions as short as reasonably possible.”

There is precedent for widespread post-deadline trading suspensions. In April last year, 57 Hong Kong stocks were suspended, the spokesman said.

Some bonds have clauses that require companies to submit audited annual results within 90 days of the fiscal year-end. If holders of 25% or more of a bond write to a borrower violating this rule and they don’t provide the figures within 30 days, they can declare the company insolvent.

write to Rebecca Feng at rebecca.feng@wsj.com

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