Evergrande CEO steps down over mysterious $2 billion claim

Debt-laden Chinese developer Evergrande 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 that shadowy lenders to a real estate services unit seized more than $2 billion of its funds. The forfeiture threatened to damage the residual value of the Evergrande international bond, which is trading for a fraction of its $20 billion value after the company defaulted late last year.

Evergrande said in a statement late Friday that Xia Haijun, its chief executive officer, and Pan Darong, its chief financial officer, had resigned over the claim, as 13.4 billion yuan ($1.9 billion) in deposits in Evergrande Property Services were pledged as security. About “Third Party Warranties”.

The company said that “based on information from the preliminary investigation”, Xia and Pan were involved in the above arrangement. “In light of this, the board decided to ask these people to resign from their positions within the group,” she added.

The collapse of the real estate group last year was part of a crisis in China’s real estate sector that slashed growth in the country. The world’s second-largest economy narrowly avoided a downturn in the second quarter, with gross domestic product expanding 0.4 percent, year on year.

Evergrande has more than $300 billion in liabilities, about $20 billion of which are foreign dollar-denominated bonds. Its collapse triggered a jolt in the foreign dollar bond market and put pressure on local governments that relied heavily on the real estate market for revenue and growth.

Evergrande said Ke Peng, an executive with Evergrande subsidiary Hengda Real Estate Group, was also involved in the arrangement and resigned.

Sean Siu, president of Evergrande’s electric vehicle company, will become the new CEO, and Qian Cheng, Group CEO, will take over the role of CFO.

The company said it was in talks with its subsidiary Evergrande Property Services about a pledge payment plan, but did not give further details.

“The main objective of the plan is to offset the related amounts by transferring the group’s assets to Evergrande Property Services,” Evergrande said.

In an interview with China’s 21st Century Business Herald, published Friday, Siu said that no personal allocation of funds was found during the investigation.

Seo said the money was used for the group’s operations and to pay off the group’s domestic and foreign debts.

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 the restructuring plan later in July. Hui Ka Yan, the billionaire founder of the group, remains CEO after stepping down as president last year.

Video: Evergrande: The end of China’s real estate boom

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