Evergrande Founder Under Probe for Asset Transfer Amid Debt Crisis

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Hui Ka Yan faces investigation for suspected illegal crimes

The founder and chairman of China Evergrande Group, Hui Ka Yan, is being investigated by Chinese authorities for suspected illegal crimes, the embattled property developer announced on Thursday. The company did not specify what crimes Hui was accused of, but sources familiar with the matter said the probe was related to his alleged attempt to transfer assets offshore while the company was struggling to complete unfinished projects and repay its massive debts.

Hui, also known as Xu Jiayin in Mandarin, is the billionaire behind Evergrande, the world’s most indebted developer with more than $300 billion in total liabilities. He was once China’s richest man, but his net worth has plummeted by 96% since July 2020, according to the Bloomberg Billionaires Index. He has been a member of the Communist Party of China for more than three decades and has invested in areas endorsed by the top leadership, such as electric vehicles and traditional Chinese medicine. He also owns the local soccer team Guangzhou F.C., which shares President Xi Jinping’s passion for the sport.

Evergrande Founder Under Probe

However, his political ties were not enough to avert a default and a deepening crisis within his empire, which has rattled the global financial markets and raised fears of a spillover into China’s banking system and economy. Evergrande has been working to get creditors’ approval for restructuring its offshore debt, but the process got complicated this week after the company said it was unable to issue new debt due to an investigation into its main China unit.

Evergrande’s troubles pose a threat to China’s property sector

Evergrande’s troubles are a symptom of the broader challenges facing China’s property sector, which accounts for roughly a quarter of the country’s GDP and is a key driver of urbanization and social stability. The sector has been under regulatory scrutiny since 2020, when authorities introduced the “three red lines” policy to curb excessive borrowing by developers. The policy sets limits on three key financial ratios: debt-to-asset, debt-to-equity, and cash-to-short-term debt.

Evergrande has breached all three red lines and has been struggling to raise cash and sell assets to meet its obligations. The company has more than 1,300 projects in 280 cities across China, but many of them are unfinished or delayed, leaving hundreds of thousands of homebuyers in limbo. The company also owes money to suppliers, contractors, employees, and investors, both domestic and foreign. Evergrande has defaulted on some of its overseas bonds and missed a December 2021 deadline to pay two dollar-bond coupons. It has also failed to pay interest on some of its onshore bonds and trust products.

The government has been reluctant to bail out Evergrande, fearing moral hazard and systemic risk. Instead, it has urged the company to resolve its own problems and protect the interests of homebuyers and other stakeholders. It has also stepped up efforts to contain the spillover effects of Evergrande’s crisis, such as providing liquidity support to the banking system, easing some of the curbs on the property market, and cracking down on illegal activities and speculation in the sector.

Evergrande’s future remains uncertain amid debt restructuring

Evergrande’s future remains uncertain as it faces a complex and lengthy debt restructuring process that may involve the sale of some of its assets and the haircut of some of its creditors. The company has said it is in talks with potential investors to sell some of its businesses, such as its electric vehicle unit and its property management arm. However, the negotiations have been hampered by the lack of clarity on the company’s financial situation and the legal risks involved.

The company has also said it is seeking the consent of its offshore bondholders to extend the maturity of its bonds and swap them for new securities with lower interest rates and longer repayment periods. However, the proposal has met with resistance from some of the bondholders, who have formed a committee to protect their interests and seek a fair and transparent restructuring. The bondholders have also filed lawsuits against Evergrande in Hong Kong and the Cayman Islands, where the company is incorporated, to recover their claims.

The investigation into Hui adds another layer of uncertainty and complexity to Evergrande’s debt restructuring, as it raises questions about his role and influence in the company and the potential legal consequences he may face. It also signals that the authorities may hold him accountable for the company’s financial woes and the social unrest they have caused. Some analysts have speculated that the probe may pave the way for a state takeover of Evergrande or a more direct intervention by the government in its restructuring.

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