Chinese developer Evergrande has suspended trading following a notification from relevant authorities that its chairman, Hui Ka Yan, has been subject to mandatory measures due to suspicion of illegal crimes. This confirmation comes as earlier reports indicated that Hui was under residential surveillance, which restricts his movement and communication. Evergrande’s shares have plummeted over 80% since trading resumed a month ago, reflecting the company’s role in China’s real estate crisis. As funding dried up, Evergrande defaulted on its debt, leading to a liquidity crisis that affected other developers as well.
The past week has seen a series of setbacks for Evergrande. The company canceled important creditor meetings due to lower-than-expected sales, and it was revealed that it couldn’t issue new debt due to a regulatory probe into its main domestic subsidiary. Furthermore, law enforcement detained Evergrande’s former CEO and CFO, along with other executives, as part of an investigation into fund misuse. On top of all this, Evergrande missed another bond payment, increasing the pressure on the company. The situation is critical, as Hong Kong courts are set to hold a hearing in October on a winding-up petition that could lead to the liquidation of Evergrande.
Some offshore creditors have already expressed their readiness to support liquidation if Evergrande fails to present a viable restructuring plan by the end of October. The company has faced significant losses in recent years, with combined losses of $81 billion in 2021 and 2022. Evergrande’s financial struggles are a result of Beijing’s new regulations aimed at reducing developers’ risk, which triggered a liquidity crisis. As the company’s fate hangs in the balance, it remains to be seen whether it can find a solution to avoid liquidation and navigate through the challenging real estate landscape in China.
