China Evergrande directors ‘fell short of expected standards’, says inquiry into deposits pledged as loan guarantees
- An internal commitee barred three senior executives previously forced from their jobs from returning
- It found ‘no apparent queries or challenges were raised’ when questionable transactions were made
The internal investigation found “no apparent queries or challenges were raised” when questionable transactions were made, according to a filing to the Hong Kong stock exchange on Wednesday evening.
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The Evergrande theme park left derelict in China’s Jiangsu province
The property service unit faced the prospect of losing most of its cash after the deposits were seized by banks.
Wednesday’s filing is a more detailed report into Evergrande’s internal control systems.
“The company is currently in discussion with Evergrande Property Services regarding a proposal to repay the funds involved in the pledges,” Evergrande Group said in Wednesday’s statement.
“The plan is mainly to set off the relevant sums by transferring assets of the group to Evergrande Property Services.”
The committee barred two Evergrande executive directors, Xia Haijun and Pan Darong, and former executive president of Evergrande and Hengda Real Estate, Ke Peng, from returning to their original positions.
The trio had been forced to resigned in July 2022 over their participation in the arrangement of the pledges. Both Xia and Pan were Evergrande’s CEO and Chief Financial Officer back then.
But between September and December 2021, Evergrande failed to repay the loans and the banks enforced the guarantees.
On Wednesday, the committee said that in arranging the pledges Evergrande’s senior management and executive directors had caused or allowed a listed subsidiary to violate disclosure and compliance obligations.
It said deference shown by staff in processing internal approvals to facilitate the arrangement of the guarantees “indicated a need for more compliance training.”
It also found that a number of people who approved the transactions at the subsidiary level relied heavily on the internal project owner to have done all the necessary compliance checks, which resulted in “limited independent vetting of the purpose, rationale and specifications of the intended transactions.”
The report cited employees saying “it was not their place to question a matter that was known to and driven by senior executives of the group, even where the transactions were contrary to normal procedure.”
The committee recommended Evergrande appoint an internal control adviser and provide training to its staff as part of the efforts to improve company governance.
Evergrande, the world’s most indebted developer, is teetering under some US$300 billion of liabilities. It has yet to release a preliminary restructuring plan it promised in July.
Trading in its shares has been suspended in Hong Kong since March 2021.
