R&F co-founder Li Sze-lim is pointing to auditor issues as cause for overdue reporting
Guangzhou R&F Properties, a former top 10 commercial developer in China and one of the country’s biggest homebuilders, has announced a delay in the release of its 2021 audited results for a third time this year.
The Hong Kong stock exchange has granted the now debt-laden developer’s request to postpone once more the publication of its annual report, provided that R&F will send out the financial update on or before 15 July and hold its annual general meeting by 15 August, the company said in a 17 May filing.
Ranked among a number of Chinese developers that have defaulted this year, or in its own case been classified as having fallen into restricted default, R&F was unable to meet the 31 March deadline for the publication of its consolidated financial statements for 2021, and then failed to distribute a copy of the results to its shareholders by 30 April, after winning a reprieve from the standard three-month deadline set by the exchange, due to the pandemic.
In announcing its latest rescheduling, R&F attributed the delays to COVID-19 restrictions, saying the pandemic limited its “ability to gather necessary external confirmations and to complete outstanding audit procedures on a timely basis”. It also cited the resignation of Big Four accounting firm PricewaterhouseCoopers on 29 April as another major cause.
Auditing Changes
Under the plan previously in place, R&F was supposed to present the audited earnings to its shareholders on or before 30 June. Citing the auditing delays, the company now says it will instead announce the results within that time frame, distribute the financial statements by 15 July, and present the results during the rescheduled annual general meeting in August.
R&F sold its Vauxhall Square site in London during March
On the surface, disagreement over the auditing schedule prompted PwC’s resignation as R&F’s auditor. However, the accounting firm disclosed that beyond pandemic-induced reasons, the developer also failed to provide information that would justify the impairments it made to the carrying value of the properties in its portfolio as of the last day of 2021. Furthermore, it noted that R&F did not give additional explanation as to why the company’s deferred income tax assets for the year needed to be recognised.
The firm also pointed out that R&F was unable to present proof of completed contracts and financial obligations in relation to its loans and other interest-bearing debts, as well as further information on cash flow forecast for 2022, which PwC believes could have affected its assessment of the developer’s consolidated financial statements.
Like many Chinese developers, R&F is plagued with liquidity concerns. In January it defaulted, albeit not explicitly, on a $750 million offshore note. It struck a deal with bondholders to extend the repayment schedule, but the delaying tactic triggered a downgrade from S&P Global Ratings.
Trading Suspension
R&F is one of 32 Hong Kong-listed companies whose shares were suspended on 1 April for missing the annual results deadline, Reuters reported. Six Chinese developers were among the group, but at least 14 notified the public of delayed financial statements, according to the South China Morning Post.
Embattled property giant China Evergrande voluntarily halted the trading of its shares on 21 March, in line with its announcement of an expected delay in the publication of its own results.
The pandemic was the main perpetrator of the delay, according to 14 of the suspended companies. Kaisa Prosperity, which on 18 May also secured a reprieve from results publication deadlines, echoed the sentiments. A year ago, 57 companies trading in Hong Kong said pandemic restrictions affected their auditing process.
“We’re kind of in uncharted territory here,” Nigel Stevenson, a Hong Kong-based analyst at GMT Research, told London’s Financial Times in March. “I can’t remember in my time in Hong Kong a situation where you’ve had so many companies from a sector delaying results.”
Auditors Grow Wary
So far in 2022, PwC also stepped down as auditor for Ronshine China on 18 March and for Shimao on 24 March. The reasons it gave were similar to what prompted its departure from R&F. For Ronshine, the accounting firm emphasised that it needed clarification on some of the company’s bank dealings, while for Shimao, PwC said it needed more information regarding the developer’s self-review of certain trust loan arrangements related to its joint ventures and associates.
Coincidentally, both developers also announced delays in their 2021 results in March. PwC’s media relations team in China and Hong Kong has yet to respond to emailed inquiries regarding the matter.
Auditor changes also took place at some other Chinese developers that warned of delayed audited results. Big Four firms KPMG and Ernst & Young departed as auditors for Sunshine 100 on 7 May and for Logan Group on 11 May, respectively. In their resignation letters, the auditors said they could not agree with the developers on a timeline for the completion of the audit, due to missing information that they deemed essential to the consolidated financial results.
Emailed queries to EY had not received a response at the time of publication. A KPMG representative said the firm was communicating internally and might respond later.
Leave a Reply