HONG KONG - China Evergrande Group confirmed on Thursday that its chairman Hui Ka Yan had been subject to mandatory measures taken by Chinese police due to suspicion of “illegal crimes”.
Trading in the embattled property giant’s shares was suspended earlier in the day after a report that Hui had been placed under police watch. Evergrande said the shares — which only resumed trading in late August after a 17-month suspension — would remain suspended until further notice.
With more than $300 billion in liabilities — roughly the size of Finland’s gross domestic product — Evergrande has become the poster child of a debt crisis in China’s property sector, which contributes to roughly a quarter of the economy.
“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,” said Gary Ng, Asia Pacific senior economist at Natixis.
“No developer is too big to fail in China, and therefore it is hard to imagine a full bailout. Still, when it comes to stability, it is possible to see more government influence in different ways.”
Evergrande grew rapidly through a land-buying spree backed by loans and by selling apartments quickly at low margins, making Hui Asia’s richest man in 2017, according to Forbes magazine.
But with its overall liabilities ballooning to more than $300 billion, it has come under pressure as the property market weakened and Chinese regulators cracked down on companies with high debt levels.
The police action involving Hui is the latest sign that the saga at the world’s most indebted developer has entered a new phase involving the criminal justice system, after authorities earlier this month detained some staff at its wealth management unit and two former executives were also reportedly held.
It adds to questions over the fate of Evergrande after setbacks to its restructuring plan in recent days roiled financial markets and raised the risk of a liquidation.
The announcement follows a Bloomberg News report, citing people familiar with the matter, that Hui was taken away by Chinese police earlier this month and put under “residential surveillance”, a type of police action that falls short of formal detention or arrest and does not mean Hui will be charged with a crime.
That measure means he is unable to leave the location, meet or communicate with others without approval, based on China’s Criminal Procedure Law. Passports and identification cards must be handed to police but the process should not exceed six months, according to the law.
For Hui, the development is another blow in a remarkable fall from grace. Once considered among the most politically connected businessmen in China with ambitions ranging from electric cars to football, the tycoon has now become the most high-profile casualty of President Xi Jinping’s crackdown on excessive leverage and speculation in the real estate sector.
Years-long crisis
Evergrande sits at the centre of a years-long property crisis that has hurt the Chinese economy and hammered confidence in the housing market. Last week, the developer said it scrapped key creditors’ meetings and has to revisit its plan to restructure its offshore debt.
Since then, it has disclosed it was unable to meet regulatory qualifications to issue new bonds — a key component of the debt overhaul — while its mainland unit failed to repay an onshore bond.
A Bloomberg Intelligence gauge of Chinese developers’ shares dropped 0.6% on Thursday to the lowest level since 2011. Homebuyer sentiment remains fragile ahead of a key holiday sales period that will test the effectiveness of stimulus measures rolled out in recent weeks.
Hui, once Asia’s second-richest person, is now worth about $1.7 billion, down from $42 billion in 2017, according to the Bloomberg Billionaires Index. Evergrande has 2.39 trillion yuan ($327 billion) in liabilities.
The 64-year-old has been a Communist Party member for more than three decades. In 2008, he was elected to join the Chinese People’s Political Consultative Conference (CPPCC), an elite group comprising government officials and the biggest names in business. He later secured two other five-year terms.
Things took a turn for the worse in 2021, when Evergrande officially became a defaulter and authorities from its home province of Guangdong led what is poised to be one of the country’s biggest debt restructurings.
Hui had been part of the CPPCC’s elite 300-member standing committee since 2013, but he was told not to attend the annual convention in March last year.
China’s central bank has blamed Evergrande’s demise on its “own poor management” and “reckless expansion”, and the government has urged Hui to use his fortune to help repay investors.