PricewaterhouseCoopers’ China unit expects the Chinese government to hand down a six-month ban as part of punishment over its audit of failed property giant China Evergrande Group, according to a person familiar with the matter.
The announcement is expected to be made within weeks, the person added, requesting not to be named because the matter is private.
PwC has been under the spotlight after China launched one of the biggest investigations of financial fraud in history. Authorities said developer Evergrande’s main onshore unit Hengda overstated its revenue by 564 billion yuan ($103.32 billion) in the two years through 2020.
China is weighing a record fine of at least 1 billion yuan on PwC that would be the biggest for auditors operating in the country, people familiar told Bloomberg in May.
South China Morning Post reported Thursday that the fine could be up to 500 million yuan, along with a ban on taking on new clients and signing off accounts of mainland-based firms.
If the penalty is handed down, it’s expected to stop PwC China from signing off on financial results, restructurings and initial public offerings, based on previous cases. PwC declined to comment on Thursday.
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PricewaterhouseCoopers Zhong Tian LLP, a Shanghai-registered firm that is part of PwC’s global network, was Hengda’s auditor during the period in question. PwC was Evergrande’s auditor for more than a decade until the global accounting firm resigned in January 2023, due to what the developer said were audit-related disagreements.
Among the Big Four accounting firms, PwC was one of the most commonly used by Chinese real estate firms listed in Hong Kong, according to data compiled by Bloomberg.
More than 30 publicly listed firms based in mainland China, including state-owned giants Bank of China and PetroChina, have dropped PwC as their auditor this year. Most of the changes happened after the firm came under scrutiny for its role in an alleged accounting fraud at property developer China Evergrande.
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PwC still counts some of China’s biggest internet companies including Tencent Holdings, Alibaba Group Holding, Meituan and Xiaomi as clients.
PwC told clients its staff will keep working during the suspension and will be able to certify the audits on 2024 annual reports once the ban is lifted in March, the Financial Times reported earlier.
Liquidation hearing
A mainland Chinese court accepted a liquidation application filed against a China Evergrande Group unit earlier this month, triggering a formal legal process that ratchets up the pressure on the defaulted developer to either restructure or face liquidation in its main base of operations under a worst-case scenario.
The Intermediate People’s Court of Guangzhou City, where Evergrande is based, accepted the application filed against Guangzhou Kailong Real Estate as of Aug 9, according to a Hong Kong stock exchange filing late Monday.
Kailong, fully owned by Evergrande, has a stake of around 60% in Hengda Real Estate, the developer’s main property operation onshore, a separate exchange filing showed.
The court will convene the first creditors meeting at 9.30am on Nov 14, the first filing said.
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Evergrande is in the process of being liquidated in Hong Kong, where it’s listed, and the latest court development opens up the possibility that a similar fate awaits the developer in mainland China. Earlier this month, Evergrande’s liquidators made public that they are seeking to recover US$6 billion ($7.83 billion) in dividends and remuneration from defendants including the group’s founder Hui Ka Yan and his ex-wife Ding Yumei.
In China, if a local court accepts a bankruptcy application, a formal process is commenced that leads to either restructuring or liquidation, or a settlement between creditors and the company. Under a liquidation scenario, Kailong’s stake in Hengda will likely be auctioned, leading to a change of holders and affecting the property business.
If Kailong does enter a liquidation process, and if needed, Hengda will “coordinate with the court” on related work, Hengda said earlier this month.
While most of Evergrande’s assets are in the mainland, liquidators in Hong Kong have largely been focusing on offshore assets as they face challenges accessing Evergrande’s onshore assets.
In the mainland, creditors of Kailong have been told to submit their claims to its bankruptcy administrator before Nov 7, the exchange filing said.
Trading of Evergrande shares remains suspended.
