China’s Evergrande Group, mired in financial turmoil, has taken another hit as its chairman, Hui Ka Yan, faces police surveillance amidst mounting problems for the embattled property giant. Evergrande also announced the suspension of its shares until further notice, exacerbating its ongoing woes.
Evergrande, once the world’s most valuable property developer, has been grappling with staggering debt, which led to a default in 2021, subsequently triggering a crisis in China’s real estate market. In August, the company filed for bankruptcy protection in the United States to safeguard its American assets while working towards a solution.
The recent announcement from Evergrande stated that Chairman Hui Ka Yan “has been subject to mandatory measures in accordance with the law due to suspicion of illegal crimes,” though it provided no further details.
This suspension of shares follows a previous 17-month suspension just a month ago, underscoring the ongoing turmoil surrounding the company. Evergrande, with over $300 billion (£247 billion) in debt, has been frantically attempting to raise funds by selling assets and shares to repay creditors and suppliers. The majority of its debt is owed to Chinese citizens, many of whom are homeowners awaiting the completion of their properties.
The 2021 default by Evergrande sent shockwaves through global financial markets, given that the property sector accounts for approximately a quarter of China’s economy. Other major Chinese developers have also defaulted over the past year, struggling to secure funds to complete their projects.
Hui Ka Yan, also known as Xu Jiayin, was born into a humble family in China’s Henan province during the Great Leap Forward campaign under Mao Zedong’s leadership in 1958. Despite his modest upbringing, he founded Evergrande in 1996 and became a prominent figure among China’s super-rich. At one point, he was China’s wealthiest individual with a fortune exceeding $42.5 billion (£34 billion), although his wealth has significantly dwindled in tandem with Evergrande’s troubles.
The potential collapse of Evergrande carries significant ramifications. Homebuyers who paid deposits for properties that were not yet constructed face potential losses. Numerous businesses, including construction firms, design companies, and material suppliers, are at risk of substantial losses due to their associations with Evergrande, which could potentially lead to their bankruptcy. Moreover, a default by Evergrande could disrupt China’s financial system, resulting in reduced lending by banks and lenders, possibly leading to a credit crunch and hampering economic growth.
Evergrande has been striving to devise a new repayment plan, with the most recent approach involving the reissuance of overseas debt as new bonds with a ten-year maturity period, alongside offering shares in the company to creditors. However, recent developments, including defaults by its subsidiaries and reported detentions of current and former executives, have further clouded the company’s future.
Fitch Ratings analysts Lan Wang and Duncan Innes-Ker emphasized that China’s property sector woes would continue to pose cross-sector credit risks, with the government’s limited policy easing having a modest impact on homebuyers’ sentiment and economic indicators. The uncertain future of Evergrande adds to the challenges facing China’s real estate sector and its broader economy.
