Emmanuel OchayiTrading in shares of China Evergrande Group (3333.HK) was abruptly suspended today following reports of its chairman, Hui Ka Yan, being placed under police surveillance.
The development has intensified concerns over the beleaguered developer’s future as liquidation risks loom large.
Evergrande, grappling with more than $300 billion in liabilities, equivalent to Finland’s entire GDP, has symbolized China’s ongoing debt crisis within the property sector, a pillar of the nation’s economy.
According to Reuters, The sudden suspension of trading affected Evergrande’s shares as well as those of two of its subsidiaries. This news followed a Bloomberg report alleging that Chairman Hui Ka Yan had been taken into police custody earlier this month and was presently under observation at an undisclosed location.
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However, the reasons for his surveillance remain unclear, and Reuters has been unable to independently verify the report. Evergrande and police authorities have not yet commented on the matter.
Evergrande’s attempts to secure creditor approval for the restructuring of its offshore debt have been further complicated. This week, the company announced its inability to issue new debt due to an investigation into its primary China unit.
Consequently, the offshore debt restructuring plan appears increasingly likely to falter, raising the specter of a potential company liquidation, according to some analysts.
Notably, Reuters recently reported that a significant group of Evergrande’s offshore creditors intends to join a liquidation court petition against the developer should it fail to submit a new debt restructuring plan by the end of October.
Gary Ng, Asia Pacific senior economist at Natixis, remarked, “It is unclear why Hui is under police surveillance, but it may signal certain negotiations demanded from the government. The latest development has disrupted the hope of restructuring.”
While no developer is considered “too big to fail” in China, concerns about stability may prompt greater government involvement in various capacities, Ng noted.
Evergrande’s shares tumbled by 19% on Wednesday in the Hong Kong market, bringing their total losses to 81% since trading resumed in late August after a 17-month suspension.
These latest challenges for Evergrande unfold as Beijing rolls out a series of measures aimed at reviving the struggling property sector, including reducing existing mortgage rates.
Redmond Wong, Saxo Greater China Market Strategist, suggested that recent regulatory easing might provide some stability to China’s housing market.
However, he cautioned that the overhang of housing inventories in lower-tier cities facing population decline would persist for several years, likely leading to more headlines about defaults, restructuring, and liquidation of insolvent developers.
The fallout from such developments could impact shareholders, bondholders, banks, and investors in trust and wealth management products linked to property projects.
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