China's financial regulatory body has imposed a substantial fine on China Evergrande Group's onshore flagship unit, Hengda Real Estate, amounting to 4.18 billion yuan ($577 million) for fraudulent bond issuance and illegal information disclosure. The China Securities Regulatory Commission (CSRC) announced the penalties on Friday, marking one of the most severe financial punishments in recent years.
The CSRC's investigation revealed that Hengda had significantly inflated its revenue figures during 2019 and 2020, leading to the fraudulent issuance of bonds. This finding follows a March filing by Hengda that first disclosed the planned penalties after the regulator's probe into the company's financial statements.
Additionally, Evergrande's founder, Hui Ka Yan, has been personally fined 47 million yuan and permanently barred from participating in the securities market. This lifetime ban underscores the gravity of the violations and the Chinese government's commitment to cracking down on financial misconduct.
"The maximum fine against Hengda is the most severe since the unified law enforcement of the bond market," stated the CSRC. The regulator took into account Hengda's significant bond issuance size and its responsibility to complete home constructions for buyers in its decision-making process.
Evergrande, notorious for being the world's most indebted property developer with liabilities exceeding $300 billion, defaulted on its offshore debt in late 2021. A Hong Kong court ordered its liquidation earlier this year. The company has been emblematic of the broader crisis facing China's real estate sector, which has struggled with ballooning debts and slowing growth.
In its March filing, Hengda acknowledged the CSRC's findings that it had inflated revenue by 213.99 billion yuan in 2019, accounting for half of its reported revenue that year. In 2020, the company inflated sales by 350 billion yuan, or 78.5% of the total. Other senior executives, along with Hui, are also facing bans from the securities market.
The CSRC also indicated that it is continuing to investigate relevant intermediaries associated with Hengda's bond issuances, though specific details were not provided. This ongoing scrutiny reflects a broader effort by Chinese regulators to address systemic risks in the financial sector.
Further compounding Evergrande's troubles, Bloomberg News reported that China is considering imposing a record fine of at least 1 billion yuan on PricewaterhouseCoopers LLP. The audit firm is accused of failing to identify and report the fraudulent activities during its audits of Evergrande. The potential penalties could also include suspending some of PwC's operations in China.
Despite the mounting challenges, Evergrande's spokesperson told the 21st Century Business Herald that the company intends to cooperate fully with regulators. The spokesperson noted that Evergrande has completed more than 80% of its development projects across China, highlighting the company's ongoing efforts to fulfill its commitments to homebuyers.
Evergrande, once the largest real estate firm in China, has seen its fortunes plummet as it became a symbol of the nation's real estate debt crisis. The company's struggles have raised concerns about the broader economic impact on China's financial system and the global economy.
The CSRC's stringent actions against Evergrande and its executives send a clear message about the Chinese government's zero-tolerance policy towards financial fraud and misconduct. As Evergrande navigates its complex restructuring process, the penalties underscore the need for greater transparency and accountability within China's real estate sector.
