"Evergrande still has a game of chess. ”
Evergrande's thunderstorm is a certainty! But the two institutions behind it have two completely different destinies.
01 Evergrande's whistleblower is miserable
How to judge a listed company's fraud? It needs regulators, auditors, and a type of short-selling institution that everyone doesn't like.
The bulls make money, the bears make money, the pigs are slaughtered, and in the matter of Evergrande's thunderstorm, Citron Research, which makes money by research, is the first whistleblower of Evergrande.
Back in June 2012, Andrew Left, the founder of Citron, published a 57-page report accusing Evergrande of fraud, with a prophecy that history has proven to be great: "Evergrande's end is predestined, and what cannot be determined is time." ”
Andrew Lefort
The Citron report listed Evergrande's "five deadly sins" to investors, including:
1. There are many misstatements in the financial statements of Evergrande Real Estate, and the fact of insolvency is concealed through deceptive accounting treatment.
2. According to the report, Evergrande Real Estate obtained raw material land at a significantly lower price than the market as a result of bribery to local officials, and will be charged with illegal land acquisition under Chinese law, and Evergrande Real Estate will be fined hefty and repossess the land.
3. Evergrande has created a complex Ponzi-style financing plan, with a series of potential financial and operational risks, including excessive debt, insufficient cash flow, and high-risk trust financing.
4. Citron claimed that Xu Jiayin's diploma was forged and secretly financed the company through asset transactions.
5. Xu Jiayin has invested heavily in football clubs, volleyball and film and television cultural projects.
At the same time, the report also lists seven major crises facing Evergrande, including: a sharp decline in cash inflows, high-interest debt, continued decline in pre-sales, sales of key assets to related parties at low prices, uneconomical projects to maintain pre-sales, large declines in contracted sales and large discounts, etc.
First, he was teased by the nine top investment banks, including Citibank, Deutsche Bank, and JPMorgan Chase, for "lacking common sense," and then he fought a lawsuit with Evergrande for four years, and under the entanglement with the behemoth, he spent several million dollars in response fees, but what was the result? Citron lost the lawsuit! Citron fought hard for his report in countless courts, and now the past is dark and untraceable.
In 2016, Citron was convicted by the Hong Kong court of spreading false information to short Evergrande, returning the HK$1.6 million profit obtained from shorting Evergrande, and was fined 5 years and banned from entering the Hong Kong market.
How did Citron find out that Evergrande had a problem? It's also ironic, it's just public information.
Citron found that the growth rate of Evergrande's asset scale was abnormal: almost five times that of its mainland counterparts.
It is also based on this 5 times the data to conduct reasonable logical reasoning, layer by layer analysis, and conclude that Evergrande is in fact insolvent, its founder has lost his morality, and there are major problems in the business model.
These accusations have since proven to be unfounded.
Foreign media interviewed Andrew Left about Evergrande's debt crisis in September 2021, and Andrew Left responded to this, saying, "Evergrande's situation has been going on for a long time...... Everything I discussed, from leverage to corporate governance, proved to be correct, and the SFC did not consider my report...... Forcing me to spend millions to protect myself. ”
Andrew Left said, "Everything I wrote [10 years ago] has come true, and the Chinese are suffering from it. This shows the importance of free speech and short selling in the market. ”
The company has since switched from long to short.
Who should find out the problem in this Evergrande scam? PricewaterhouseCoopers, the auditing agency that has issued unqualified audit reports to Evergrande for 14 consecutive years.
02 Evergrande's sponsor is safe and sound
PwC is the first of the Big Four and has been cooperating with Evergrande for a long time.
In 2009, when China Evergrande went public in Hong Kong, PricewaterhouseCoopers was its cooperative accounting firm, and for many years thereafter, China Evergrande's audit reports were issued by PricewaterhouseCoopers.
In March 2021, three months after PricewaterhouseCoopers issued an audit report for Evergrande, Evergrande thundered without warning. I really didn't have the slightest defense, and I was caught off guard by the slap in the face. This has led to doubts among investors: Is PwC deliberately blind to risk?
The annual fees that PwC takes from Evergrande are tens of millions. To a certain extent, it is precisely because PwC issued an unqualified audit report to endorse Evergrande's credibility that Evergrande can continue to issue bonds and borrow from banks.
What happened to PwC? So far, nothing has happened, not a word, and it has landed safely.
03 Where to go
Should PwC be held responsible, and what kind of responsibility should it bear?
One case that is often compared in the industry is the Enron incident.
In 2001, Enron, the largest energy company in the United States at that time, declared bankruptcy, before the bankruptcy, Arthur Andersen, one of the world's five largest accounting firms, admitted to helping Enron make false accounts, was convicted of obstruction of justice and finally collapsed, Arthur Andersen did 89 years of audit business finale, since then, the world's five largest accounting firms have changed dramatically, "Big Five" into "Big Four".
The scale of Evergrande's fraud is clearly greater than Enron's, but the criteria for diligence and diligence in auditing are complex and still inconclusive.
When Evergrande's debt of more than 2 trillion exploded:
People who bought Evergrande's new house waited for the unfinished building;
Those who bought Evergrande bonds waited for the distant repayment to come;
People who bought Evergrande shares waited for the plunge to destroy the three views;
The people who did business in partnership with Evergrande were dragged down alive.
PwC owes everyone an apology!