China Evergrande’s Service Unit Investigating $2.1 Billion of Its Cash Used as Collateral to Banks

Property services unit of China Evergrande Group said it was investigating how 13.4 billion yuan ($2.1 billion) of its deposits were used as security for pledge guarantee and enforced by banks.

The unusual development, which Evergrande Property Services Group Ltd. said it discovered while preparing its annual report, may heighten scrutiny of corporate governance at the real estate empire founded by billionaire Hui Ka Yan.

Although the main property bussing unit has been struggling with debt for months, Evergrande’s service unit has long been one fo the strongest unit of the group.

“It was found that deposits of approximately 13.4 billion yuan as security for third-party pledge guarantees had been enforced by the relevant banks,” Evergrande Property Services said in a statement to the Hong Kong stock exchange, without providing details on the pledge, the third party or the lenders.

“The company will establish an independent investigation committee and arrange for experts to be appointed to investigate the pledge guarantees.”

In a separate statement, Evergrande said it considers the matter to be a “major incident” and will assess the implications on itself. Shares of Evergrande and its units have been suspended in Hong Kong since Monday.

Recently, Chinese developers are increasingly delaying deadline for financial reporting which is expected to be due to increased scrutiny by authorities.

Earlier China Evergrande Group joined a handful of Chinese developer to warn that they will probably miss deadlines for reporting audited 2021 results this month.

On Monday, Kasia Kasia Group citing constrains in audit work completion due to lockdown in Shenzen said it would not be able to publish its financial results by March 31.

Separately, Evergrande and its financial advisers are to hold an investor call on Tuesday, according to two investors who received the invitation, as reported by Bloomberg.