Evergrande: shares suspended and founder under watch

The founder of the Chinese real estate giant Evergrande is now under investigation for alleged “illegal activities”. This news, released on Thursday, has raised further concerns among creditors about the future of the group, already teetering between an uncertain debt restructuring plan and the risk of liquidation.

Evergrande, with a debt exceeding $300 billion, is the world’s largest indebted property developer. However, it is unclear whether Hui Ka Yan, the founder, will continue to lead the company or what crimes he is being investigated for.

Evergrande’s shares were previously suspended following rumors that the chairman was under police surveillance. The company has confirmed that the shares will remain suspended until further notice.

This announcement marked a turning point, suggesting that the authorities may hold the billionaire founder of Evergrande responsible for the company’s financial difficulties. These difficulties have had significant repercussions on the Chinese real estate sector, which accounts for about a quarter of the country’s economy.

The growing crisis in the Chinese real estate sector, already burdened by debts, could jeopardize Beijing’s efforts to revive an already struggling economy, fueling fears of repercussions on the national banking system.

This is just the latest blow for Evergrande, which has faced a series of crises since its liquidity problems became public knowledge in 2021, culminating in a default on its offshore bonds in the same year.

Gary Ng, senior economist for Asia-Pacific at Natixis, commented, “The reason for the surveillance on Hui is unclear, but it could indicate some demands from the government. This new development has raised questions about the hope for a restructuring.”

Evergrande has a hard future

Evergrande is seeking approval from creditors to restructure its offshore debt. However, this week, the company stated that it cannot issue new debt due to an investigation into its main Chinese unit.

Some analysts believe that the offshore debt restructuring plan is now in jeopardy and that the risk of liquidation for the company is increasing.

Evergrande’s difficulties have raised the prospect of intervention by the Chinese authorities to manage the impact on the financial system and the economy as a whole. Christopher Beddor, deputy director of China research at Gavekal Dragonomics, observed, “They have so far avoided a systemic crisis caused by one of the developers, and they will intervene further if Evergrande’s situation appears to lead to contagion.”

Evergrande’s recent difficulties are part of a broader context, with Beijing introducing a series of measures in recent weeks to revive the struggling real estate sector.

However, despite regulatory efforts, the appetite for property purchases remains weak in an already fragile economy. “The oversupply of housing in lower-tier cities with declining populations will persist for several years,” wrote Redmond Wong, market strategist for Saxo Greater China, in a research note.