Founder under investigation for undisclosed crimes
Shares of China Evergrande Group, the world’s most indebted property developer, soared as much as 42% on Tuesday as it resumed trading in Hong Kong after a halt last week. The company announced that its founder and chairman, Hui Ka Yan, was being investigated by Chinese authorities for suspicion of illegal crimes, without providing any details. The news came amid reports that Hui and other current and former executives had been placed under police surveillance or detained as part of a probe into the company’s debt crisis.
Debt restructuring plan in jeopardy
Evergrande, which has more than $300 billion in liabilities, has been struggling to avoid defaulting on its offshore debt obligations since late 2021. The company has missed several interest payments and failed to reach an agreement with its creditors on a restructuring plan. The company said last week that its main unit in China was unable to issue new debt due to the ongoing investigation, further complicating its efforts to raise funds and complete unfinished projects.
The company faces a looming deadline of October 30, when a Hong Kong court will hear a winding-up petition filed by a creditor, which could potentially force the company into liquidation. Reuters reported last week that a major offshore creditor group was planning to join the petition if Evergrande did not submit a new debt revamp plan by the end of October. Analysts say the risks of the company being liquidated are increasing, which could have severe consequences for China’s economy and financial system.
Market reaction and outlook
Despite the surge in Evergrande’s shares on Tuesday, the stock has lost around three-quarters of its value since August and is trading at a fraction of its peak in 2017. The company’s bonds have also plunged to record lows, reflecting the low confidence of investors in its ability to repay its debts. The company’s troubles have also weighed on the broader property sector and the Chinese stock market, as well as sparking fears of contagion in global markets.
Some analysts say the investigation into Hui and other executives could be a sign that the Chinese government is preparing to intervene and take over the company, which could provide some relief to the market. However, others say the probe could also indicate that the authorities are losing patience with Evergrande and are ready to let it fail, which could trigger a disorderly collapse. The fate of Evergrande remains uncertain, as the company and its stakeholders await the outcome of the legal and regulatory actions.