Bobby Yip/Reuters
- Beijing has accused Evergrande of inflating revenue by $78 billion in 2019 and 2020.
- Regulatory authorities have fined Evergrande's founder and banned him from the securities market for life.
- The crackdown could serve as a warning to other defaulting developers in China's property crisis.
It just seems to get worse and worse for fallen Chinese real-estate giant Evergrande.
The developer, at one time China's largest, is in liquidation after several years in a debt crisis.
Now, it's being accused of fraud, too.
The China Securities Regulatory Commission, or CSRC, has accused Hengda Real Estate — Evergrande's flagship onshore unit in China — and its founder Hui Ka Yan, also known as Xu Jiayin, of inflating its revenue by 564 billion Chinese yuan, or $78 billion, in 2019 and 2020, according to an exchange filing released on Monday. It also issued bonds based on the falsified results, the CSRC alleges.
Evergrande did not immediately respond to a request for comment from Business Insider.
To understand the scale of the alleged $78 billion fraud, consider the following two cases, as Bloomberg pointed out. In 2020, Chinese coffee giant Luckin Coffee inflated its revenue by $300 million. Enron pumped up its profits by $600 million in 2001. Both Enron and Luckin rank among the biggest fraud cases in history, and neither comes close to the scale of the allegations levied against Evergrande.
The CSRC said Hui was responsible for organizing and falsifying financial information using means that were "particularly egregious." The authority slapped Hui with a 47 million yuan fine for his violations and banned him from the securities market for life.
The CSRC also imposed a 4.2 billion Chinese yuan fine on Hengda Real Estate.
Other former Hengda Real Estate executives, including its ex-CEO and ex-CFO, were also hit with fines and market bans.
These mark the latest developments in the downfall of Hui, who was put under police surveillance in September. He has also lost three mansions in The Peak, Hong Kong's prestigious neighborhood.
Bejing's crackdown on Evergrande could be a signal to other developers to get their acts together, said an analyst.
"The CSRC fines may serve as a warning to owners of other defaulted developers that failing to collaborate with authorities over debt restructuring could result in severe consequences," Zerlina Zeng, the head of East Asia corporates at CreditSights, a research firm, told Business Insider.
Zeng added that the fines are unlikely to impact Evergrande's liquidation process because Hui is unlikely to pay using his personal wealth anyway.
Many Chinese property developers have defaulted on their debt in the past several years, and there are fears that China's property crisis could spill over into the broader domestic, causing contagion in the global economy.
Trading in Evergrande shares on the Hong Kong Stock Exchange has been halted since January 29 when it was ordered to be liquidated.