An official at the People’s Bank of China said the spread of the crisis in the financial system Evergrand was manageable, as the central bank missed international bond payments last month in the first official comment from the world’s first official borrower developer.
The statement came as the company faces increasing scrutiny from regulators before a possible default next week, Hong Kong-based Audit Watchdog has announced an investigation into PwC’s recent audit of its accounts.
Zhu Lan, a PBOC official, told reporters at a news conference on Friday evening that the Evergrand situation was being resolved by local governments and authorities through “market and rule of law principles”.
These comments represent a significant intervention by Beijing when Evergrand spreads global volatility when it misses out on dollar 2 billion in September to pay interest on a bond worth its dollar, which starts a day0 day grade period.
The company’s rapidly unfolding liquidity crisis has shown signs of spreading across China’s real estate development sector, where the number of defaulters is rising, raising concerns about the possible consequences for China’s larger economy.
Developer Fantasia defaulted on a 206 million bond last week, when Scenic Holdings said a default on Monday’s payments would “probably” happen. Offshore yields on China’s risky corporate orrowers have reached a 200-year high.
Lan said Evergrand had been “poorly managed” and “failed to manage with caution”, but the real estate industry was more broadly healthy.
The Chinese developer missed out on paying more interest on its offshore bonds on Monday, when advisers to Evergrand’s bondholders said last Friday that there had been no “meaningful engagement” from their company.
Separately on Friday, Hong Kong’s Financial Reporting Council said it had identified “questions about the adequacy of Evergrand’s financial statements for 2020 and the reporting of concerns in the first six months of June 2021.” It added that it would investigate whether PwC’s 2020 audit “complied with applicable audit standards”.
PWC has signed Evergrand’s 2020 account as an ongoing concern, an accounting term that shows an organization has the resources to continue working for at least 12 months.
However, the company said in an interim financial statement for the first half of this year, released in late August, that it had risked defaulting on its bonds just weeks before interest payments on international bonds were missing.
The FRC said in a statement that while Evergrand acknowledged that it had liquidity problems and that some of its assets had been suspended due to delays, it “did not make a clear statement” on whether there was “material uncertainty in the interim report” as well as its annual report published earlier this year. Done.
PwC, which audits the company from Hong Kong, has received m 2 million in fees from Evergrand since 2009. PwC declined to comment on the company’s audit. It did not immediately respond to a request from the FRC.
Nigel Stevenson, an analyst at GMT Research, who has been critical of the company’s PWC audit for many years, said in the wake of the FRC’s announcement that the company “could come under increasing scrutiny about their role and what they knew” when it comes to Evergrand.
“A lot of questions have been raised about Evergrand for a decade or so,” Stevenson said. “There’s really no excuse if la lag is verified.”
Evergrand did not immediately respond to a request for comment.