China Evergrande chairman put under police watch; liquidation risk looms
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[September 27, 2023] By
Scott Murdoch, Julie Zhu and Rae Wee
HONG KONG (Reuters) -The chairman of China Evergrande Group has been
placed under police surveillance, Bloomberg News reported on Wednesday,
raising more doubts about the embattled developer's future as it
grapples with the mounting threat of liquidation.
Citing people with knowledge of the matter, the report said Hui Ka Yan,
who founded Evergrande in 1996 in the southern city of Guangzhou, was
taken away by police earlier this month and is being monitored at a
designated location.
Evergrande is the world's most indebted developer with more than $300
billion in total liabilities and has been at the centre of an
unprecedented liquidity crisis in China's property sector, which
accounts for roughly a quarter of the economy.
It was not clear why Hui was placed under residential surveillance,
Bloomberg News said, adding the move was a type of police action that
falls short of formal detention or arrest and does not mean Hui will be
charged with a crime.
Reuters could not immediately verify the report. Evergrande, the police
department in Guangdong province, whose capital is Guangzhou, and the
public security ministry did not immediately respond to requests for
comment.
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A person close to Evergrande said Hui had stopped contacting staff over
the past few days, while an industry source said he had become totally
inaccessible. Both of them declined to be identified as they were not
authorized to speak to the media.
The reported action against Hui comes after police in southern China
said earlier this month that they have detained some staff at
Evergrande's wealth management unit, which raised funds from individual
investors by selling investment products.
Once China's top-selling developer, Evergrande's financial crisis became
public in 2021 and since then it and a string of its peers have
defaulted on their offshore debt obligations amid slowing home sales and
fewer new avenues for fundraising.
Adding to its woes, Evergrande's offshore debt restructuring plan, the
key to its survival amid a stifling cash crunch, looks set to falter and
the prospects of the firm being liquidated are gathering momentum.
The company is "very likely to fail on debt restructuring, and with
negative equity, Evergrande may go into bankruptcy, which includes
bankruptcy reorganization and bankruptcy liquidation," UOB Kay Hian
wrote in a note on Wednesday.
As the developer's already sold but unfinished apartments will pose a
risk to "social stability", there is a good chance that Evergrande will
likely seek bankruptcy reorganization, the brokerage said.
Reuters reported on Tuesday that a major Evergrande offshore creditor
group was planning to join a liquidation court petition filed against
the developer if it does not submit a new debt revamp plan by the end of
October.
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That plan comes after the company rattled markets on Sunday with its
announcement that it could not issue new bonds as part of its debt
restructuring plan because of a regulatory investigation into its main
Chinese unit, Hengda Real Estate.
Hengda, in a separate filing on Monday, said that it had failed to pay
the principal and interest on a 4 billion yuan ($547 million) bond due
by a Sept. 25 deadline.
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![](../images/092723PIX/busine80.jpg)
A woman rides a scooter past residential buildings at an Evergrande
residential complex in Beijing, China September 27, 2023.
REUTERS/Florence Lo
![](http://archives.lincolndailynews.com/2019/Sep/05/images/ads/current/stclara_lda_SPONSOR_090519.png)
Shares in Evergrande ended down 19% on Wednesday, while an index
tracking Hong Kong-listed mainland developers fell 0.2%.
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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.
But with its overall liabilities ballooning to more than $300
billion, it came under pressure as the property market weakened and
Chinese regulators cracked down on companies with high debt levels.
The structure of Evergrande and the way the business operated under
Hui came under scrutiny as the empire began to unravel amid growing
pressure to meet repayment obligations and finish apartment
construction.
A Shanghai-based holder of Evergrande's yuan-denominated bonds said
the news that Hui had been put under police watch was not a surprise
given the company's massive problems.
The focus will now be on whether the government will rescue
Evergrande and how much Hui personally would pay to creditors, said
the bondholder, also declining to be identified due to the
sensitivity of the matter.
"We are now just resigned to our fate."
Investors are also focused on problems at another major Chinese
developer, Country Garden, which is facing a new bond coupon
repayment deadline on Wednesday.
The $40 million coupon, with a 30-day grace period, is tied to an
8%, $1 billion dollar bond that matures in January and is the latest
payment challenge facing Country Garden, as the developer strives to
avoid default.
![](http://archives.lincolndailynews.com/2023/Sep/27/images/ads/current/ldn_sda_KAREN_012823.png)
The country's No.1 private developer, whose financial woes worsened
the property sector outlook and prompted Beijing to unveil a raft of
support measures in the last few weeks, scrambled to successfully
dodge defaults this month.
Offshore creditors widely expect Country Garden to delay the coupon
payment due by Wednesday, while making use of the grace period to
come up with plans to restructure all of its offshore debt.
A Country Garden spokesperson declined to comment.
"The fall of industry stalwarts in China's property space has been
alarming, to say the least," said Fiona Kwok, Asian Fixed Income
portfolio manager, First Sentier Investors.
"Until Chinese regulators come through with stimulus significant
enough to inject optimism into the property market and increase
property sales, default risk remains high among private and mixed
ownership developers."
(Reporting by Scott Murdoch in Sydney, Julie Zhu in Hong Kong and
Rae Wee in Singapore; additional reporting by Summer Zhen in Hong
Kong; Writing by Sumeet Chatterjee; Editing by Neil Fullick,
Muralikumar Anantharaman and Kim Coghill)
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