China Evergrande forced its chief executive and chief financial officer to resign last week, citing their involvement in a scheme in which loans secured by pledge guarantees were transferred and diverted back to the debt-saddled developer via unnamed third parties and used for general operations.
The loan arrangement was disclosed in preliminary findings reported to the Hong Kong stock exchange on Friday after an “independent investigation” undertaken by the Shenzhen-based company. The inquiry followed a March announcement that RMB 13.4 billion ($2.1 billion) in assets had disappeared from the balance sheet of Evergrande’s property services unit.
Based on information obtained from the preliminary investigation, Evergrande stated that CEO Xia Haijun and CFO Pan Darong, both executive directors of the company, and Ke Peng, an executive president of property flagship Hengda Real Estate Group, were participants in the loan scheme.
“In view of this, the board resolved to request such persons to resign from their positions within the group,” chairman Xu Jiayin said in the HKEX filing.
Asset Transfer on the Cards
The parent group is in discussions with the property services unit on a repayment plan for the sums related to the pledges, Evergrande said. The plan calls for offsetting the relevant sums by transferring assets of the group to Evergrande Property Services.
The company will also consider appointing an internal control consultant to conduct a comprehensive review of Evergrande’s internal control and risk management systems as the developer grapples with a $300 billion debt pile.
To succeed the departed Xia as CEO, the group appointed Evergrande New Energy Vehicle chairman Shawn Siu, according to a separate filing on Friday. In addition to his role at the group’s electric car unit, Siu has served on the Evergrande board since his appointment as an executive director in January of this year.
Joining Siu on the board as newly appointed executive directors are Liu Zhen and Qian Cheng, with the latter taking over the CFO role from Pan. Liu and Qian are currently vice presidents of the group.
Profiles in Leadership
Xia’s future with Evergrande was thrown into doubt in February with the disclosure that the CEO had sold his holdings of dollar-denominated bonds issued by the developer in a series of transactions before the group’s liquidity crisis worsened, the South China Morning Post reported.
Last August, Xia sold $50 million in notes due in 2022, $50 million in notes due in 2023 and $28 million in notes due in 2025, according to an HKEX filing six months later.
After defaulting on offshore bonds in December, Evergrande this month was spurned by creditors over a request to delay repayment of a RMB 4.5 billion ($670 million) onshore bond. To make matters worse, the group is facing a wind-up petition filed in Hong Kong’s high court by an unhappy investor in Evergrande’s Fangchebao online platform.
Evergrande reigned as China’s top developer from 2016 to 2020, but the group dropped to 32nd place in the first half of this year with contracted sales of RMB 22.2 billion — about one-fifteenth of the year-earlier figure.