A quartet of outside law firms and accountants will help probe how banks ended up taking control of more than $2 billion at a key China Evergrande Group subsidiary.
Last week, the highly indebted Chinese real-estate developer and its Evergrande Property Services Group Ltd. unit said lenders had enforced their rights over 13.4 billion yuan, or about $2.1 billion, of bank deposits pledged by the subsidiary to guarantee third-party borrowing.
The professional advisers will work with non-executive directors at Evergrande and its property-services unit, after both companies set up board committees to investigate the incident.
“Preliminary investigation has revealed that the pledge of the relevant deposits and the enforcement took place in 2021,” Evergrande said late Tuesday in a filing to the Hong Kong stock exchange.
China Evergrande said it will hire Reed Smith Richards Butler LLP, while the subsidiary will appoint DLA Piper, Jincheng Tongda & Neal and Grant Thornton China. Both companies said the investigation committees had begun collecting information and will strive to complete their probes as soon as possible.
Shares in the two Hong Kong-listed companies and another major Evergrande subsidiary, China Evergrande New Energy Vehicle Group Ltd., had been halted since March 21.
On Wednesday, shares in the car-making unit, which is also known as Evergrande Auto, resumed trading and fell as much as 14% in morning trade. Evergrande Auto said it was seeking more information on the deposit seizure. “The board considers that this primarily concerns a sister company,” it added.
Evergrande Auto said its shares would be halted again from Friday, as it won’t meet Hong Kong’s March 31 deadline to publish audited annual results. It said it expects to release the audited results in about three months.
Evergrande and Evergrande Property Services, whose shares are still suspended, have both said they won’t meet the deadline for audited results either.
In another filing, Evergrande said it had agreed to offload a stake in Crystal City, a project in the eastern Chinese city of Hangzhou, for 3.66 billion yuan, or about $575 million.
The two state-owned buyers will pay Evergrande within 20 months after the sale is completed, it said. About a quarter of the proceeds will be used to repay construction fees owed to one of the buyers, Evergrande added.
Evergrande is China’s most-indebted property developer, with the equivalent of more than $300 billion in liabilities as of June 2021. It defaulted on its offshore debts in December.
Last week, Evergrande told offshore creditors it was on track to deliver a global restructuring plan by July, but warned that there may be additional pledges and guarantees made from the company’s offshore subsidiaries to onshore entities.
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