China Evergrande said that there was no substantial evidence throughout the report to prove that the company had never made a profit, and its so-called conclusions were only speculation and suspicion on the part of the authorThe report uses the results of 2023 to demonstrate the accuracy of its 2016 against the company, and there is no substantive basis.
China Evergrande clarified again from many aspects. In terms of revenue recognition, the company undoubtedly changed its revenue recognition method in 2021 and adopted a more compliant accounting treatment based on the current environment, mainly due to the company's decision in the context of the liquidity crisis and the loss of a large number of personnel.
In addition, China Evergrande believes that the data and conclusions of the above report lack direct relevance. The report argues that the company's gross profit is low, and it is doubtful that the profit does not exist. In fact, the company's profit began to decline in 2021, in addition to the decline in selling prices caused by industry difficulties, it is also related to the company's sales of properties with low gross margins.
As early as December 4 last year, China Evergrande issued an announcement saying that it had noticed that an institution had published a report on December 1 last year that the company had never made a profit.
According to public information in the market, GMT Research, a short-selling agency, previously issued a report saying that China Evergrande's postponement of the 2021 annual report clearly reflects that the company has clearly exaggerated revenue and profits, and is likely to continue to exaggerate for many years, believing that Evergrande is not a victim of the downturn in the property market, but has fundamental problems, and has never even been profitable.
The report pointed out that Evergrande had overstated revenue and profit growth for many years, and in the 2021 report, it made significant adjustments to the way property sales revenue was recognized, changing the previous description to recognize revenue when "the customer accepts the property, or the property is deemed to have been accepted by the customer according to the sales contract", which does not mention that the property is "delivered" or "completed", and only needs to be deemed accepted.
On top of this, Evergrande adds an additional condition for revenue recognition, which is to "obtain a completion record certificate or deliver the real estate inventory to the owner", which is a necessary condition for the delivery of the property. According to the report, before 2021, Evergrande appeared to have recorded its revenue in full in some cases, before the property was delivered or even completed.
The report also pointed out that Evergrande changed its accounting method, which should have been traced back to the financial data of previous periods and made adjustments, but Evergrande explained that it could not deal with it due to the departure of a large number of employees, and only adjusted from 2021, and the relevant changes had a significant impact on the financial statements. The report also pointed out that Evergrande is already insolvent, and its offshore bond structure is attached to onshore liabilities, which also has the risk of becoming useless, and the company can only continue to borrow to maintain its operations, but there are already signs that some of the funds** have been exhausted, and to some extent, the company will be too large to raise funds.
According to public market information, GMT Research is a Hong Kong-based research institution. On the agency's website, GMT Research describes itself as an Asia-focused accounting research firm regulated by the Hong Kong Securities and Futures Commission (SFC) that uses specialized methods to detect financial anomalies or similar accounting fraud. Previously, GMT Research has issued short-selling reports many times, and more frequently "fired" at Hong Kong-listed companies, including Alibaba, Changhe Industrial, etc., but subsequent related companies strongly denied it, and were also questioned by many institutions such as CICC, Credit Suisse, and Deutsche Bank.