What Happened
Shares of China Evergrande Group (EGRN.F) had a wild ride on Friday. The penny stock soared in the morning and was up by 27% at 1:02 p.m. ET to nearly $0.16. Then it fell precipitously in the afternoon, and by the closing bell, it was back down to $0.11 per share -- down 10.93% for the day.
The catalyst was the resignation of its CEO and chief financial officer amid an internal investigation.
So what
China Evergrande Group is one of the largest property developers in China, and it has amassed a huge quantity of debt, which is becoming more problematic due to that country's struggling real estate market.
The company was investigating how some $2 billion of its deposits had been seized from its property services unit and used as security for third parties to obtain bank loans, according to Bloomberg. Some of those borrowers did not repay the loans, leaving the cash holdings at the property services unit severely depleted.
As a result, CEO Xia Haijun and CFO Pan Darong resigned, at the request of the board, for their involvement in the scheme. The market initially reacted positively, but a sell-off kicked in late in the day.
Now what
Shawn Sui, an executive director with the company, has been named the new CEO.
According to Bloomberg, Sui said China Evergrande Group is working with multiple creditors on debt restructuring and is seeking a "law-compliant" solution to the seized funds issues. Meanwhile, the outlook for China's real estate market is not any better in the near term.
