Evergrande delays results as banks seize $2 billion from unit

Banks have unexpectedly taken control of more than $2 billion held by a China Evergrande EGRNF -7.19%

The group’s main subsidiaries, as the embattled real estate developer said, neither it nor its main publicly traded entities could meet an upcoming deadline to release their full-year results.

The lenders’ move adds new uncertainty to Evergrande’s restructuring. Global bondholders see the two major Hong Kong-listed subsidiaries, which focus on real estate management and automotive manufacturing, as important potential sources of value for international bondholders.

Evergrande Property Services GmbH.

6666 2.68%

said the lenders had won their rights over about 13.4 billion yuan, or $2.1 billion, in bank deposits. These were said to have been offered “as collateral for third-party liens”, suggesting the money is securing debt assumed by another borrower.

Evergrande said this was a “major incident” that came to light during a review of the real estate services subsidiary’s annual financial report and is being investigated by independent investigative committees at both companies.

Hidden debt has proven to be a problem for China’s real estate sector. Investors were surprised by off-balance sheet liabilities that were not previously disclosed to investors or rating companies, such as guarantees on asset management products or personal loans.

Evergrande, Evergrande Property Services and China Evergrande New Energy Vehicle Group GmbH.

708 12.82%

All said on Tuesday that “a large number of additional audit procedures” and the pandemic meant they could not release the annual audited results by March 31, as mandated in Hong Kong.

All three companies had halted trading in their shares before the market opened on Monday. Stock market rules meant their shares would likely remain on hold until results were released, the trio said on Tuesday.

Evergrande is China’s most heavily indebted real estate developer with debts equivalent to more than 300 billion euros. The company held a conference call with bondholders on Tuesday to update its plan, according to people familiar with the matter.

With the general real estate industry in crisis, other developers have also delayed releasing financial information. Ronshine China Holdings GmbH.

said on Monday that audit work on its full-year results would not be completed on time after its auditor, PricewaterhouseCoopers, resigned.

Holdings of the Shimao Group GmbH.

said Monday it expected a delay due to 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 announced that it had begun an investigation into PwC’s audit and an investigation into Evergrande’s recent accounts.

Separately, Evergrande said on Tuesday it had hired law firm King & Wood Mallesons to bolster its advisory team. It already works with institutions like Houlihan Lokey inc,

Admiralty Harbor Capital Ltd., China International Capital, based in Hong Kong corp

BOCI Asia Ltd. and Zhong Lun Law Firm LLP.

write to Clarence Leong at clarence.leong@wsj.com

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https://www.wsj.com/articles/evergrande-delays-results-as-banks-seize-2-billion-from-unit-11647932131?mod=rss_markets_main Evergrande delays results as banks seize $2 billion from unit

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