Jingrui Holdings has made a series of disclosures to the Hong Kong Stock Exchange in an effort to explain the mysterious disappearance of more than 4.9 billion RMB ($730 million) in claimed bank deposits that led PricewaterhouseCoopers to resign from its position. auditor position in May.
The failing developer’s disagreement with its former auditor relates to bank confirmation letters for the amount of RMB 4.9 billion that were sent by PwC to the Guangzhou and Shanghai branches of a national bank in February this year, Jingrui said Monday in a filing with Hong Kong. Sotck exchange.
PwC received responses to the seven letters from the unidentified bank in March. But in April, when the accounting firm phoned the Guangzhou branch to confirm the authenticity of the letters, the auditor was told the bank had no record of receiving or accepting the letters. Additionally, the COVID-19 situation in Shanghai prevented PwC from contacting this branch to verify the contents of the purported bank letters.
Jingrui verbally informed PwC in May that bank deposits come with certain special provisions such as pledges, transfers of funds and counter-guarantees, and that for this reason they may be limited. PwC believed the case could have a material impact on Jingrui’s 2021 financial statements, the publication of which has been delayed, and the two parties were unable to agree on a timeline for completing the audit. .
Shanghai-based Jingrui said on Monday there was “no doubt about the authenticity” of the bank deposits.
“The question is whether bank deposits have been restricted or not, and that would impact the classification of bank deposits in the company’s consolidated financial statements,” co-chairmen Yan Hao and Chen Xin Ge said in the filing. HKEX.
Jingrui’s board of directors set up an independent committee on July 18 to hire a professional adviser to help conduct an investigation into the issue of bank deposits and related internal control issues of the group.
Brock Silvers, chief investment officer at Hong Kong-based Kaiyuan Capital, said Jingrui appears to be “in an extremely compromised position”.
“The company’s 4.9 billion RMB of available bank deposits should have reassured investors, but now appear to have been intentionally misrepresented,” the veteran Chinese investor told Mingtiandi. “Documents evidencing unencumbered deposits have been disavowed by the relevant bank, and the best-case scenario is that the deposits actually exist, but are encumbered with pledges or guarantees.”
Falsification of bank statements by state-owned companies is not an uncommon practice on the continent, according to Silvers. The developer’s response added to investor concerns, as the “independent committee” formed to investigate the matter is made up solely of the company’s existing independent directors.
“Jingrui is basically investigating himself,” Silvers said.
New offshore default
The update on Jingrui’s dispute with its former auditor was released just days after the developer announced a new default last Friday, saying it did not plan to pay a $260 million offshore bond coming due. due Monday of this week.
This financial flop came after the developer failed to make timely interest payments totaling $59.3 million on four rounds of offshore bonds in June, with Jingrui blaming the defaults on the impact of China’s COVID-19 lockdown measures in Shanghai Group base and other key cities.
Also on Friday, Jingrui said it had appointed Admiralty Harbor Capital as its financial adviser to assess the group’s capital structure and explore solutions to alleviate liquidity issues. The company has appointed Sidley Austin as legal counsel in support of the effort.
Hong Kong-based Admiralty Harbor has also been retained for its services by fellow Jingrui defaulters China Evergrande and Shimao Group, while US law firm Sidley Austin is advising Shimao and Modern Land China.