China’s Evergrande baffled (and worried) after lenders claim $2 billion in cash

Chinese developer Evergrande said Tuesday it is investigating how lenders have laid claim to deposits valued at more than 13.4 billion yuan ($2.1 billion) for its subsidiary, the latest black mark against the debt-ridden property giant.Beijing’s drive to curb excessive debt in the real estate sector has embroiled Evergrande, one of the country’s largest developers, which has been struggling after racking up $300 billion in liabilities.It announced Tuesday that one of its key units Evergrande Property Services Group had about $2.1 billion in cash that banks have laid claim to as security guarantees via a third party, a discovery made when the company was doing its annual report.”In the review of its financial report for the year ended 31 December 2021, (the subsidiary) found that deposits of approximately RMB13.4 billion as security for third party pledge guarantees had been enforced by the relevant banks,” the company said in an announcement on the Hong Kong Stock Exchange.”(Evergrande) considers that this is a major incident and has established an independent investigation committee to assess the implication of the incident.”Another committee for the property subsidiary will “investigate the pledge guarantees” to its lenders.The statement does not provide details on which banks had enforced the pledges.This revelation adds to the financial woes of Evergrande, which international ratings firms in December had labelled as being in default after it had failed to repay liabilities on time.The company also said Tuesday it would not be able to publish its 2021 audited results by the end of March — as Hong Kong’s listing rules require — blaming the delay on Covid-19.Read more: China Evergrande shares halted, set to release ‘inside information’”Due to the drastic changes in the operational environment of the Company since the second half of last year… coupled with the effect caused by the Covid-19 outbreak… the Company will not be able to complete the audit procedures on time,” it said in a separate announcement.It added that the suspension in its share trading — which had halted Monday — will remain in force until further notice.It urged investors to exercise caution “in view of the operational and financial challenges the group is facing and in particular the debt pressure it is experiencing”.Monday’s suspension is the second one this year.The company has repeatedly said it will finish its projects and deliver them to buyers in a desperate bid to salvage its debts, and had asked its creditors to give them time.Earlier struggles to pay suppliers and contractors due to the crisis led to protests from homebuyers and investors at the group’s Shenzhen headquarters in September.Also read: Property stocks sink, Oaktree seizes assets: Evergrande updateEvergrande’s woes have had knock-on effects throughout China’s property sector, with some smaller firms also defaulting on loans and others struggling to find enough cash.The International Monetary Fund warned in late January that the property funding crisis could have spillover effects on the broader economy and global markets.