In major news on Hong Kong stocks, China Evergrande Group (HK:3333) has been accused by the China Securities Regulatory Commission of revenue fraud of ¥564.1 billion ($78 billion) in the books of its flagship unit, Hengda Real Estate Group. The allegations include fraudulent documentation in Hengda’s financial reports, including overstating revenues for two years. Further, the company’s founder and former chairman, Hui Ka Yan, faces a lifetime ban from the securities market and a fine of ¥47 million following these accusations by regulators.
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In addition to Hui, the regulatory authority is imposing a lifetime ban on former Evergrande Chief Executive Xia Haijun from participating in the securities market. The regulator also ordered a fine of ¥4.2 billion on Hengda Real Estate and penalties for several other Evergrande executives.
According to a filing on Monday, Hengda Real Estate significantly exaggerated key financial figures in both 2019 and 2020. Moreover, the company issued bonds backed by these misleading numbers. The company inflated its sales by approximately ¥214 billion in 2019 and by another ¥350 billion in its 2020 annual results, as alleged by the China Securities Regulatory Commission.
The Evergrande Saga
China Evergrande was a leading name in China’s real estate landscape. In January 2024, a Hong Kong court mandated the liquidation of the China Evergrande Group, also listed in Hong Kong, after unsuccessful negotiations with its creditors. The company, sitting on $300 billion in liabilities, failed to present a suitable restructuring plan within two years of defaulting on its offshore debt, despite multiple court hearings. The liquidation, even though anticipated, led to more uncertainty in the already fragile Chinese economy and real estate sector.
Before its liquidation, Evergrande shares had lost 53% of their value over the past year. Following the verdict, trading was suspended for China Evergrande and its listed subsidiaries, including China Evergrande New Energy Vehicle Group (HK:0708) and Evergrande Property Services (HK:6666).
Later on, trading was resumed for these two subsidiaries. Year-to-date, Evergrande Property Services has gained around 25%, while Energy Vehicle Group is down 22%. The liquidation is not anticipated to affect Evergrande’s subsidiary companies.
