Heavily indebted Chinese developer Evergrande has replaced its chief executive and chief financial officer after an internal investigation revealed they were involved in a scheme that led to banks demanding more than $2 billion from a subsidiary.
In March, the group said mysterious lenders at a real estate services unit had seized more than $2 billion of its cash. The seizure threatened to jeopardize the residual value of Evergrande’s international bonds, which are trading at a fraction of their $20 billion worth following the company’s default late last year.
Evergrande said in a statement late Friday that Xia Haijun, its chief executive, and Pan Darong, its chief financial officer, both resigned over the demand, which involved Rmb13.4 billion (US$1.9 billion) in deposits pledged to Evergrande Property Services as security for “Third Party Guarantees”.
The company said that “based on the information from the preliminary investigation,” Xia and Pan “participated in the above agreement.” It added: “In light of this, the board decided to ask such individuals to step down from their positions within the group.”
The property group’s collapse last year was part of a crisis in China’s real estate sector that has dragged down the country’s growth. The world’s second-largest economy narrowly avoided contraction in the second quarter, with gross domestic product growing 0.4 percent year-on-year.
Evergrande has more than $300 billion in debt, of which approximately $20 billion is offshore dollar-denominated bonds. Its collapse has rocked the offshore dollar bond market and put pressure on local governments, which have relied heavily on the real estate market for revenue and growth.
Ke Peng, an executive at another Evergrande subsidiary, Hengda Real Estate Group, also participated in the deal and has resigned, Evergrande said.
Shawn Siu, chairman of Evergrande’s electric vehicle company, will become the new chief executive and Qian Cheng, a senior executive at the group, will assume the role of chief financial officer.
The company said it is in talks with its subsidiary Evergrande Property Services about a repayment plan for the liens, but gave no further details.
“The main plan is to offset the corresponding sums by transferring the group’s assets to Evergrande Property Services,” said Evergrande.
In an interview with 21st Century Business Herald, a Chinese website, published on Friday, Siu said no personal appropriation of funds was found during the investigation.
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“The funds were used to operate the group and repay the group’s domestic and foreign debts,” Siu said.
The developer added that it was “considering” appointing an internal controls advisor to review the company’s risk management processes and would release a report on the investigation.
Evergrande are expected to announce their restructuring plan later in July. Hui Ka Yan, the group’s billionaire founder, remains executive director after stepping down from his chairmanship last year.
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