Pressure on Evergrande with leader under police surveillance, risk of liquidation

Hui Ka Yan, chairman of Evergrande Real Estate Group Ltd., the country’s second-largest property developer by sales, attends an annual results press conference in Hong Kong, China, March 29, 2016. REUTERS/Bobby Yip/File photo Get license rights

HONG KONG, Sept 27 (Reuters) – The chairman of China Evergrande Group ( 3333.HK ) has been placed under police surveillance, Bloomberg News reported on Wednesday. .

Hui Ka Yan, who founded Evergrande in the southern city of Guangzhou in 1996, was picked up by police earlier this month and is being monitored at a designated location, the report said, citing people familiar with the matter.

It’s unclear why Hui was placed under residential surveillance, Bloomberg News said, adding that the measure falls short of formal detention or arrest and does not mean Hui will be charged.

Reuters could not immediately verify the report. Evergrande, the police department of Guangdong province, its capital Guangzhou and the Ministry of Public Security did not immediately respond to a Reuters request for comment.

Evergrande is the world’s most indebted property developer and is at the center of an unprecedented liquidity crisis in China’s property sector, which accounts for a quarter of the world’s second-largest economy.

Once China’s top-selling developer, Evergrande’s financial crisis became public in 2021, and since then it and its peers have defaulted on their foreign debt obligations, with declining home sales and fewer new ways to raise funds.

The move, which Hui is said to be monitoring, shows that its offshore debt restructuring plan, key to its survival amid a crippling cash crunch, is faltering and the prospect of its liquidation is gathering pace.

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Reuters reported on Tuesday that a group of major Evergrande offshore lenders plans to join a bankruptcy court petition filed against the developer if it does not submit a new debt restructuring plan by the end of October.

The plan comes after the company rocked markets on Sunday when it announced it could not issue new bonds as part of its debt restructuring plan due to a regulatory investigation into its main Chinese unit, Hengda Real Estate.

Hengda said in a separate filing on Monday that it had failed to pay principal and interest on a 4 billion yuan ($547 million) bond due by a Sept. 25 deadline.

Shares in Evergrande rose 1.3% in afternoon trade on the Hong Kong market on Wednesday, while the index tracking Hong Kong-listed mainland developers ( .HSMPI ) was little changed from its earlier close.

Coupon fee

Evergrande’s latest woes come as investors focus on another major Chinese developer, Country Garden ( 2007.HK ), which faces a new bond coupon repayment deadline on Wednesday.

The $40 million coupon is attached to an 8%, $1 billion bond maturing in January with a 30-day grace period and is the latest payment challenge facing Country Garden as the developer tries to avoid default.

The country’s No.1 private developer, whose financial woes have worsened the property sector outlook and prompted Beijing to unveil support measures in the past few weeks, scrambled this month to successfully stave off default.

Offshore lenders widely expect Country Garden to delay coupon payments on Wednesday, while using a grace period to come up with plans to restructure all of its foreign debt.

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A Country Garden spokeswoman did not immediately respond to a Reuters request for comment.

“The decline of industry leaders in China’s property space is very worrying, to say the least,” said Fiona Kwok, Asia fixed income portfolio manager at First Centennial Investors.

“Until Chinese regulators come up with significant stimulus to inject confidence into the property market and increase property sales, default risk remains high among private and mixed-ownership developers.”

Scott Murdoch in Sydney and Ray Wee in Singapore report; Written by Sumeet Chatterjee; Editing by Neil Fullick and Muralikumar Anantharaman

Our Standards: Thomson Reuters Trust Principles.

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Scott Murdoch has been a journalist in Australia for over two decades, working for Thomson Reuters and News Corp. He has specialized in financial journalism for most of his career and has covered equity and debt capital markets across Asia and Australian M&A. He is based in Sydney.

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