Xia Haijun, CEO of Chinese property developer Evergrande, and Pan Darong, chief financial officer, have resigned following an internal investigation into the transfer of $2 billion to a collateral subsidiary.

Chinese real estate giant Evergrande rocked by senior executive resignations

Xia Haijun, CEO of Chinese real estate giant Evergrande Group, has resigned as he neared a restructuring deal to pay off $300 billion in debt that has rocked the country’s property market.

Evergrande has been investigating for some time how about $2 billion of its deposits are used as collateral by third parties to take out bank loans, Bloomberg reports. It has been reported that some of these loans have not been repaid.

Resignations AFTER INTERNAL INVESTIGATION

An internal investigation found senior executives were involved in a scheme that led to banks demanding more than $2 billion from a subsidiary, the Financial Times reported.

The company said in March that it had requested more than $2 billion in cash from lenders in its real estate services unit. This move threatened to seriously undermine the residual value of Evergrande’s international bonds. Evergrande’s international bonds are trading at a fraction of their $20 billion valuation after the company defaulted late last year.

Evergrande said on Friday that its CEO, Xia Haijun, and its chief financial officer, Pan Darong, had both resigned over the allegations. Apparently, deposits of $1.9 billion in Evergrande Property Services were cited as security for “third party guarantees”.

The company said that based on the information obtained during the preliminary investigation, Xia and Pan agreed with the aforementioned arrangement. “Thereupon, the Board of Directors has resolved to require these individuals to resign from their positions with the Company,” the statement said.

It was said that Ke Peng, one of the directors of Hengda Real Estate Group, another subsidiary of the company, also participated in the arrangement and therefore resigned.

EVERGRANDE STARTED THE REAL ESTATE CRISIS

The collapse of the real estate group last year was a major element of the crisis in the real estate sector, which dampened Chinese growth. The world’s second-largest economy narrowly escaped contraction in the second quarter and its gross domestic product rose 0.4% from the same period a year earlier.

Evergrande has a total debt of over $300 billion. Of these, about $20 billion comes from offshore dollar-denominated bonds.

Many projects in China have been delayed or halted due to the real estate crisis triggered by Evergrande’s default. The Chinese, who bought homes from these projects, began a boycott of payments due to the developments. Under ongoing payment boycotts in nearly 90 cities across China, people are refusing to pay mortgages for unfinished apartments.

NEW MANAGERS HAVE BEEN ANNOUNCED

Shawn Siu, president of the group’s electric vehicle company, will become the new CEO, and Qian Cheng, one of the group’s executives, will take the seat of chief financial officer.

In the statement made on behalf of the company, it was stated that negotiations were underway with Evergrande Property Services on a collateral repayment plan.

In an interview with Chinese website 21st Century Business Herald on Friday, Siu said no personal allowance was found during the investigation.

“The funds were used to pay off group activities and internal and external debts,” Siu said.

In a statement on behalf of Evergrande, he added that an internal control consultant is being considered to review the company’s risk management procedures and that a report on the investigation will be released.

Evergrande is expected to announce its restructuring plan at the end of July.

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