Evergrande Reassures on Controls and Processes After Internal Review

China Evergrande has completed an internal review of its internal controls and procedures, along with issues raised by its former auditor over a $2 billion loan scheme, with the defaulted developer stating that the changes being made will satisfy listing standards in Hong Kong.

The review by RSM Nelson Wheeler Consulting and Crowe Risk Advisory was conducted after the world’s most indebted builder forced its chief executive and chief financial officer to resign last year. Evergrande had cited the pair’s involvement in a scheme in which loans secured by pledge guarantees were transferred and diverted back to the debt-saddled developer via third parties and used for general operations.

In a Monday filing with the Hong Kong stock exchange, Evergrande provided a laundry list of findings, recommendations and the company’s responses, with the group pledging to implement policies aimed at, among other things, avoiding conflict of interest, vetting board nominees, training managers on compliance and beefing up contract filing and seal approval procedures.

“The board (including the independent investigation committee) is of the view that the group has improved its internal control system and processes, and it is sufficient for the purposes of fulfilling the company’s obligations under the listing rules and safeguarding the company’s rights and interests,” chairman Xu Jiayin said in the filing.

Former CFO Resurfaces

From July to mid-August, RSM and Crowe conducted follow-up reviews of the enhanced internal control system and processes, with RSM concluding that Evergrande had implemented the recommended rectification measures.

“RSM believes that as of the date of the internal control review report, within the scope of its assessment work, the group’s internal control system and processes (including systems, processes and control implementation) have been designed and operating with fundamental effectiveness, and the relevant internal control risks are managed at a reasonable level,” Evergrande said.

In February, Evergrande chided former CEO Xia Haijun and ex-CFO Pan Darong for their participation in the loan scheme, following an “independent investigation”. The board at the time recommended against reinstating Xia, Pan or Ke Peng — a former executive president of property flagship Hengda Real Estate Group — to their original positions.

In Monday’s filing, the group made note of Pan’s new post at Evergrande Peiguan Education Technology, where the former finance chief is said to be responsible for comprehensive planning and administrative logistics work while reporting to the person in charge of the comprehensive management.

Evergrande said that since Pan is classed as an ordinary employee, “he has no management, approval or decision-making power”.

Restructuring Vote Next Week

The advisories’ clean bill of health comes after Evergrande last week filed for Chapter 15 bankruptcy protection in a US court, though the company has characterised the move as a request for the bankruptcy court to approve a restructuring plan for offshore bondholders.

With Evergrande struggling to come to terms with $22.7 billion in offshore debts, the company is set to meet with offshore bondholders to vote on the proposed restructuring scheme on 28 August.

Evergrande announced last week that it had rescheduled the meeting, originally set for 22 and 23 August, to give lenders more time to assess the impact of a proposed stake sale in its China Evergrande New Energy Vehicle unit worth $500 million.