- Evergrande crisis escalates.
- Hui Ka Yan under surveillance.
- China’s real estate risks grow.
The chairman of Evergrande, Hui Ka Yan, faces police surveillance amid the company’s escalating troubles.
Evergrande announced that it would maintain the suspension of its shares until further notice.
This marks a new low for the heavily indebted property giant, which triggered the current real estate market crisis in China with its default in 2021.
In August, it filed for bankruptcy in the United States to protect its American assets while negotiating a deal.
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Evergrande stated in a Thursday release that Mr. Hui “has become subject to mandatory measures in accordance with the law due to suspicion of illegal activities,” without elaborating further.
The latest share suspension follows the lifting of the company’s previous 17-month suspension just one month ago.
Once the world’s most valuable property developer, Evergrande now lies at the heart of a real estate crisis threatening the world’s second-largest economy.
With a debt exceeding $300 billion (£247 billion), the company has been frantically selling assets and shares to raise cash for repaying suppliers and creditors.
The majority of Evergrande’s debt is owed to Chinese citizens, many of whom are ordinary people left with unfinished residences.
In 2021, the company’s massive debt default sent shockwaves through global financial markets, as the property sector accounts for approximately one-quarter of China’s economy.
Several other significant developers in the country have defaulted in the past year, and many struggle to secure funds for project completion.
Who is Hui Ka Yan?
Hui Ka Yan, also known as Xu Jiayin, was born into poverty in the central Chinese province of Henan in 1958 during Mao Zedong’s Great Leap Forward economic and social campaign.
Despite his humble beginnings, he founded Evergrande in 1996 and became the face of China’s super-wealthy.
In 2012, he earned the nickname “Belt Brother” for wearing a Hermès belt with a gold buckle at China’s annual legislative conference.
His wealth reached $42.5 billion (£34 billion) in 2017, making him China’s wealthiest individual.
However, his wealth has since plummeted, primarily due to Evergrande’s escalating issues, and he has maintained a low profile.
Why does Evergrande’s failure matter?
There are several reasons for the severity of Evergrande’s problems.
First, many individuals bought property from Evergrande even before construction began, risking the loss of their deposits if the company fails.
Additionally, businesses that collaborate with Evergrande, including construction firms, design companies, and material suppliers, face substantial potential losses that could lead to insolvency.
If Evergrande defaults, banks and lenders may reduce lending, potentially causing a credit crunch, making it challenging for companies to access funds at reasonable interest rates.
A credit crisis would be disastrous for the world’s second-largest economy, as businesses unable to secure loans may struggle to expand or even continue operations.
This could also unsettle foreign investors, causing them to view China as a less attractive destination for their investments.
New Plan
In July, Evergrande revealed losses totaling 581.9 billion yuan ($79.6 billion; £55.6 billion) over the past two years.
After filing for bankruptcy protection in the US, the company began working on a new repayment plan, seemingly moving closer to a resolution.
Their most recent plan included reissuing overseas debt as new ten-year bonds and offering creditors equity stakes in the form of shares.
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However, this week, Evergrande announced that its mainland subsidiary Hengda Real Estate defaulted on a 4 billion yuan debt.
Chinese business newswire Caixin reported the detention of several current and former executives.
Trading in its property services and electric vehicles divisions was also suspended on Thursday.
Fitch Ratings analysts Lan Wang and Duncan Innes-Ker noted, “China’s real estate sector will continue to pose cross-sector credit risks in the near future.”
Although there have been recent improvements in broader economic indicators, the report states that “the government’s modest policy easing to date is unlikely to trigger a sharp turnaround in homebuyers’ sentiment.”
