China Evergrande Group's CEO, CFO quit on $2-billion claim: Report

The indebted company was investigating how deposits worth 13.4 billion yuan belonging to the unit, Evergrande Property Services, were used as collateral for pledge guarantees and seized by banks

China Evergrande Group said that its chief executive officer and finance head have resigned after a preliminary probe found their involvement in diverting loans secured by its publicly listed unit to the group.

The indebted company was investigating how deposits worth 13.4 billion yuan ($1.99 billion) belonging to the unit, Evergrande Property Services, were used as collateral for pledge guarantees and seized by banks.

The pledges threatened to wipe out most of the cash the unit was holding.

The company said the loans secured by the pledges, which involved three sets of deposits, “were transferred and diverted back to the group via third parties and were used for the general operations of the group.”

Global investors have turned their attention to the Chinese developer’s cash flow problems out of worry that a collapse may shake the financial system and slow development in the world’s second-largest economy.

The embattled developer said CEO Xia Haijun has resigned from the group due to his involvement in the arrangement of the pledges, along with Chief Financial Officer Pan Darong.

Siu Shawn, who is currently an executive director of the company and chairman of the group’s EV unit, has been appointed the new CEO. Vice President Qian Cheng has been named CFO, the company said.

China on alert, restructuring plans in offing

The clock is ticking for the world’s most indebted developer, whose liquidity woes sparked a broader debt crisis in China’s property industry that’s gone on to engulf more home builders, threaten banks and pose growing challenges for President Xi Jinping. 

China Evergrande Group had said it was on track to deliver a preliminary restructuring plan by the end of July. That leaves mere days for the builder with about $300 billion of liabilities.  Money managers and policy makers are bound to see the restructuring as an important precedent for dealing with ever-expanding defaults and restructurings in China’s real estate industry, which accounts for about a quarter of the world’s second biggest economy. 

As risks build, the government has been ramping up support for the sector, just months away from a once-in-five-years Communist Party meeting where Xi is expected to seek a third term (Bloomberg).