China’s state-owned developer Yuexiu Property has pulled out of a $1.7bn deal to buy Evergrande’s Hong Kong headquarters due to concerns over the latter’s dire financial situation as per Reuters sources. The sources said that Yuexiu was close to sealing the deal in August but Yuexiu’s board opposed the move over worries that Evergrande’s ‘unresolved indebtedness would create potential complications in completing the transaction smoothly’. The move adds to the negative news flow for Evergrande, which skipped its dollar bonds’ coupon payment last month, the first of which is due at the end of the week after a 30-day grace period.
Evergrande’s dollar bonds were flat with its 8.75% 2025s at 20.2.
Hong Kong’s audit regulator, the Financial Reporting Council (FRC) issued a press release on Oct 15, 2021 stating that it was investigating Evergrande’s accounts for the full year of 2020 and 1H2021. They will also investigate the audit carried out by PwC on Evergrande’s 2020 annual accounts since it made no reference to its ‘going concern’ material uncertainties.
The FRC added that Evergrande as of end 2020, the reported cash and cash equivalents of RMB 159bn ($24.7bn) did not cover its current liabilities of RMB 1,507bn ($234bn) and that it had further borrowings of RMB 167bn ($26bn) maturing in 2022. In the 2021 interim accounts, Evergrande revealed that it was having contract negotiations with suppliers and construction workers for “which work was suspended due to overdue property development accounts payable”. In addition, Evergrande again made no explicit statement in the 2021 interim accounts that material going concern uncertainties existed or whether its directors judged it was appropriate to “adopt the going concern basis and, if so, whether that judgement was significant”.