Heavily indebted Chinese developer Evergrande has replaced its chief executive and chief financial officer after an internal investigation found they were involved in a scheme that led to banks claiming more than $2 billion from a subsidiary.
In March, the group said mystery lenders at a real estate services unit seized more than $2 billion of its cash. The seizure threatened to affect the remaining value of Evergrande’s international bonds, which trade at a fraction of their $20 billion value after the company defaulted late last year.
Evergrande said in a statement late Friday that Xia Haijun, its chief executive, and Pan Darong, its chief financial officer, had resigned over the claim, where 13.4 billion Rmb ($1.9 billion) of deposits were pledged to Evergrande Property Services as collateral. for “third party guarantees”.
The company said that “according to information from the preliminary investigation,” Xia and Pan “participated in the above arrangement.” He added: “In view of this, the board decided to ask these individuals to resign from their positions within the group.”
The property group’s collapse last year was part of a crisis in China’s property sector that has dragged down growth in the country. The world’s second-largest economy narrowly avoided a contraction in the second quarter, with gross domestic product rising 0.4% year-on-year.
Evergrande has more than $300 billion in liabilities, about $20 billion of which are offshore dollar-denominated bonds. Its collapse has rattled the offshore dollar bond market and put pressure on local governments that rely heavily on the real estate market for revenue and growth.
Ke Peng, an executive at another Evergrande subsidiary, Hengda Real Estate Group, was also involved in the deal and has resigned, Evergrande said.
Shawn Siu, who is chairman of Evergrande’s electric vehicle company, will become the new CEO, and Qian Cheng, a group executive, will serve as chief financial officer.
The company said it was in talks with its subsidiary, Evergrande Property Services, about a repayment plan for the pledges, but gave no further details.
“The plan is primarily to offset the relevant sums by transferring the group’s assets to Evergrande Property Services,” Evergrande said.
In an interview with 21st Century Business Herald, a Chinese website, published on Friday, Siu said no personal misappropriation of funds was found during the investigation.
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“The funds were used for the Group’s operations and the payment of the Group’s internal and external debts,” Siu said.
The developer added that it was “considering” appointing an internal control consultant to review the company’s risk management procedures and would issue a report on the investigation.
Evergrande is expected to announce its restructuring plan at the end of July. Hui Ka Yan, the group’s billionaire founder, remains chief executive after stepping down as chairman last year.
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