Shimao Hires Investigators to Probe Issues Raised by PwC Auditors

Troubled mainland developer Shimao Group has hired a fresh set of advisors to carry out an “independent investigation” into accounting issues raised by the company’s departed auditor, PricewaterhouseCoopers.

In addition to the probe to be conducted by RSM Corporate Advisory, Shimao has appointed Zhonghui Anda Risk Services to perform an independent review of the company’s internal control system, according to a quarterly update filed with the Hong Kong stock exchange.

PwC resigned as Shimao’s auditor in March after the Big Four firm flagged irregularities concerning certain trust loan arrangements and the parties failed to agree on a timetable for issuing the company’s 2021 annual report, which has yet to be released. Shimao appointed Hong Kong-based Zhonghui Anda that same month to take up the auditing job.

“The board of directors and the management of the company will continue to work closely with the auditor to publish the 2021 annual results and annual report, the 2022 interim results and interim report, as soon as practicable,” vice chairman and president Jason Hui said in the Monday filing.

Army of Advisors

Shanghai-based Shimao, whose landmark projects included five-star hotels in the megacity, was once considered largely immune to the crisis that has engulfed bigger peers like China Evergrande Group and Sunac China Holdings. That was before Shimao suffered its first-ever default in July when it missed a payment on a $1 billion offshore bond.

The company chaired by Xu Rongmao (who also goes by his Cantonese name, Hui Wing Mau) appointed Hong Kong-based Admiralty Harbour Capital as its financial advisor and US law firm Sidley Austin as its legal advisor to begin work on a debt restructuring plan.

In August, Reuters reported that Shimao had proposed a two-class restructuring plan to offshore creditors to repay $11.8 billion over a period of three to eight years. The company said this week that it was “actively pushing forward” the restructuring work with its financial and legal advisors and continuing to engage in dialogue with various groups of creditors.

For the three months from June to August 2022, Shimao’s contracted sales amounted to RMB 22.5 billion ($3.2 billion). By comparison, the developer’s contracted sales in the single month of August 2021 had totalled RMB 24 billion.

Seeking Solvency

In a bid to right the ship, Shimao has executed a series of asset disposals and negotiated its way out of an overdue debt owed to Singapore’s United Overseas Bank.

In January, Shimao revealed plans to sell the Hyatt on the Bund Hotel in Shanghai to a property investment firm controlled by the city government for RMB 4.5 billion ($707.5 million).

In September, Shimao agreed to sell its stakes in two Beijing residential projects to red-chip developer China Resources Land for RMB 3.3 billion ($480 million). Later that month, Shimao reached a deal with UOB, its creditor on a Hong Kong residential project, in which the bank would buy out full rights to a HK$10 billion loan linked to the Tai Wo Ping luxury development.