Dozens of stocks suspended in Hong Kong over account issues

Dozens of Hong Kong-listed companies had their shares suspended on Friday after missing a deadline to file their financial figures. About a third of the problematic announcements concern the real estate sector, which demonstrates its growing distress.

A total of 35 companies halted trade from Hong Kong today. Many companies blame the Covid-19 pandemic for problems with the production of their annual reports. But it also triggers “red flags” when accountants quit or balk at signing company accounts, as I explained on Wednesday.

The problems are also getting worse. Rating agency Fitch blamed companies in preparing financial results when it downgraded mainland property developers Sunac China Holdings (HK:1918) and Ronshine China Holdings (HK:3301) on Tuesday. This reduces their ability to raise funds.

Hong Kong’s listing rules require public companies to produce annual figures within three months of the end of their financial year. Yesterday was therefore the deadline for companies that had a calendar year end. The Hong Kong Stock Exchange shall, under normal circumstances, require a suspension of trading if the time limit has expired.

The Hong Kong stock exchange has given companies a Covid-related break, with the exchange allowing them to file unaudited results by March 31, provided they are then able to provide the audited version by April 30.

Nearly 200 companies filed unaudited results this year, compared to just 27 in 2021 and 380 in 2020, when the pandemic first hit. Even that has proven beyond many businesses in 2022, with real estate developers particularly struggling to make sense of their accounts.

Shares suspended on Friday include leading developers Shimao Group Holdings (HK:0813) and (SIOPF), Sunac, Kaisa Group Holdings (HK:1638), Fantasia Holdings Group (HK:1777), Modern Land (HK:1107), China Aoyuan Group (HK: 3883) and Sunshine 100 China Holdings (HK: 2608).

China Aoyuan said it would not take advantage of permission to file unaudited figures. With the report not ready, management cannot yet calculate the “provision for impairment,” the company said in its filing. The unaudited results “may not accurately reflect” the group’s financial performance, he explained.

Future electric car maker China Evergrande New Energy Vehicle (HK:0708) also saw its shares halted. The company has not yet produced a salable vehicle and has not been able to prepare its accounts.

It is a subsidiary of China Evergrande Group (HK:3333) and (EGRNF), once the biggest developer in China, which has already had its own shares and those of its property management arm suspended since March 18. This is after Evergrande Property Services Group ( HK:6666) discovered a $2.1 billion hole in its accounts while preparing its annual results, details I dug up on Wednesday.

A flurry of companies also rushed to file accounts on Friday, with firms including packaging supplier Hop Fung Group (HK:2320), furniture supplier Royale Home (HK:1198) and publisher of Meta Media Holding (HK:0072) magazines by taking advantage of the leeway offered by the filing of unaudited figures.

There are explicit distress calls. Developer Yuzhou Group (HK:1628) said on Friday it was using bankers and lawyers to negotiate with offshore creditors for its survival. This translates to a corporate understatement as a desire “to explore all possible options to seek a holistic solution to the current situation with a view to securing the long-term future of the business for the benefit of all parties. stakeholders”.

And there are more subtle signs of trouble. Audit resignations have become increasingly common in the real estate industry as auditors are not comfortable signing off on what the company presents. Ernst & Young resigned as bean counter of Yuzhou, while PricewaterhouseCoopers resigned as auditor of Hopson Development Holdings (HK:0754), Ronshine and Shimao. Deloitte cut ties with China Aoyuan.

Fitch and rival rating agency Standard & Poor’s are expressing unease over sudden changes in auditors. “S&P Global Ratings believes that changing accounting firms just before year-end results raises questions about the quality of a company’s governance,” S&P says. This demonstrates at least a lack of internal control, perhaps more serious issues in how losses and debt are reflected. “We anticipate more developers will face this issue as auditors push back against opaque practices such as the use of off-balance sheet debt.”

Aware that the Chinese real estate sector is under the spotlight, especially from regulators in Beijing, accountants are particularly cautious in their treatment of the results of real estate developers this year.

Last year, 57 companies across all industries failed to report results in time to Hong Kong. The pandemic was a year old at this point; only nine did not file on time in 2020.

This time there was a real emergency. Hong Kong was hit by an extremely heavy wave of Covid infections in late February and early March. Official Covid cases have topped 1.15million in the city of 7.4million, but modeling from the University of Hong Kong suggests half the population may have caught the disease.

But doubts about the transparency and accuracy of corporate statements do not reassure investors, who are suffering sharp portfolio declines.

The Hong Kong stock market was the worst performer in the world last year, with the Hang Seng index falling 14.1%. It has only amplified this with a 5.3% fall so far this year, and is now at levels last seen in 2016, producing a 9.2% loss over the past five years. years.

Hong Kong stocks gained 0.2% today, regaining their composure after falling 1.8% at the open when trading halts took effect. Still, Hong Kong underperformed mainland China stocks’ 1.3% gain.

We have also seen real estate transactions and sales fail due to the slowdown in the real estate market. On Friday, Greenland Hong Kong (HK:0337), the offshore arm of state-owned developer Greenland Holdings (SH:600606), announced it was abandoning a HK$595 million ($76 million) joint venture with the developer Chinese. Guangdong SPG in the southern megacity of Guangzhou. He blamed the “downtrend” and poor sentiment in China’s property market, leading to a slump in home sales and tighter credit to developers.

Greenland, which is 46.4% owned by the Shanghai government, was one of the most internationally acquired Chinese developers in the middle of the last decade, buying the redevelopment of four Metropolis skyscrapers in downtown Los Angeles and a 70% stake in the Pacific. Park Brooklyn megaproject in New York. But he recently backed down, selling the site of a $2 billion San Francisco project that never broke new ground, along with two undeveloped phases of the redevelopment of the Ram district in southwest London.

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