A spate of auditor resignations at Chinese property companies is reigniting concerns about
financial transparency in an industry facing a credit squeeze and more than US$60 billion of bond redemptions this year.
PwC quit its role at Hopson Development on January 27, citing inadequate access to necessary information, while Deloitte stepped down at China Aoyuan a day earlier, exchange filings showed. Shimao Group’s mainland unit will change its auditor, Shanghai Certified Public Accountant, for the first time in 27 years on January 24.
The changes are a red flag for investors who have been putting up with
growing credit defaults among cash-starved developers since August 2020 when the Chinese government began imposing stringent debt discipline under its ‘three red lines” policy.
“Changing auditors just ahead of year-end results, without clear explanation, could imply a deficiency in internal controls,” said Gao Fan, a credit analyst at S&P Global Ratings. “It bolsters our view that Chinese developers need to increase their financial transparency.”
New Evergrande protests amid reports troubled Chinese property giant ordered to raze development
The resignations came at a sensitive time as Chinese developers prepare to report their latest set of corporate earnings. Incidents of hidden debt, or off-balance sheet borrowings, have spooked the market after companies including China Evergrande and Kaisa Group disclosed it sold billions of high-yielding wealth management products to augment their cash flow.
The Hong Kong Financial Reporting Council, the city’s audit watchdog, earlier asked PwC to explain the adequacy of its work for China Evergrande, after its debt crisis that later led to a default on its dollar bonds in December.
