(Yicai) March 19 -- The flagship unit of struggling real estate developer China Evergrande Group, its founder Xu Jiayin, and other senior executives have been penalized for falsifying revenues by CNY560 billion (USD78 billion) in the two years preceding the builder’s default in 2021.

China’s securities watchdog imposed a CNY4.2 billion (USD580 million) fine against Hengda Real Estate Group, the Guangzhou-based subsidiary said in stock exchange filings yesterday. 

Xu, Hengda’s chairman during the years in question, was actively involved in the financial fraud, according to the regulator. He was fined CNY47 million (USD6.5 million) and is banned for life from China’s securities market.

Xu, 65, is known as Hui Ka Yan in Cantonese and was once China’s richest man.

Other top Hengda executives, including former President Xia Haijun who was also slapped with a lifetime market ban, received penalties of between CNY200,000 and CNY15 million (USD27,790 and USD2.1 million) each.

In 2019 and 2020, Hengda inflated its annual revenues by about CNY214 billion and CNY350.2 billion (USD29.7 billion and USD48.6 billion), respectively, net profits by CNY40.7 billion and CNY51.3 billion, and costs by CNY173.3 billion and CNY298.9 billion, according to the results of an investigation by the China Securities Regulatory Commission.

The falsified revenue and profit in 2019 accounted for about 50 percent and over 63 percent, respectively, of the company’s totals that year, per the CSRC, while the same figures were nearly 79 percent and 87 percent in 2020.

Based on the inflated earnings in 2019 and 2020, Hengda was able to fraudulently issue five bonds worth a total of CNY20.8 billion, according to the CSRC.

Hengda also did not release its financial statements for 2021 and 2022 in a timely manner, failed to disclose major litigation and arbitration cases involving CNY431.2 billion, and did not specify the amount of its mature debts, which came to about CNY278.5 billion, according to the watchdog. 

In January, the High Court in Hong Kong ordered Evergrande, the world’s most indebted property developer, to liquidate. Hengda’s parent company defaulted on its offshore debt in late 2021.

Evergrande started to include property presales in its annual business revenue and profit in 2017, which led to great surges in corresponding earnings for three straight years. But after 2021, the company faced working capital difficulties and was forced to add its confirmed revenue for the previous few years to debts of contracts.

Founded in 1997, Evergrande has nearly 300 big property projects in 139 Chinese cities, including Beijing, Guangzhou, Shanghai, and Tianjin.

Editor: Futura Costaglione