China Evergrande says founder Hui Ka-yan under ‘mandatory measures’ for alleged crimes, amid stock trading halt in Hong Kong

Shares of China Evergrande, Evergrande Property Services and China Evergrande New Energy Vehicle Group will be suspended from trading until further notice
Developer said it has been notified by authorities that its chairman and founder has been placed under ‘mandatory measures’ for unspecified crimes

China property

Jiaxing Liin Hong Kong,Yulu Aoin Hong KongandChad Brayin London

Published: 10:20am, 28 Sep 2023

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China Evergrande Group said its chairman and founder Hui Ka-yan has been placed under so-called “mandatory measures” due to “suspicion of illegal crimes”, hours after the troubled Chinese property developer suspended trading of its shares and those of its two major subsidiaries.

Hui, known as Xu Jiayin on the mainland, has not been seen in public for some time, and his whereabouts were a subject of intense speculation in mainland media. The announcement followed the arrest of several top executives within the group earlier this month.

The Shenzhen-based developer said it had been notified by relevant authorities in China that Hui was subject to mandatory measures, according to the exchange filing. It did not elaborate. The term can include house arrest, among others, in local regulatory parlance, analysts said.

Evergrande on Thursday asked for the suspension of trading in its shares, as well as shares of Evergrande Property Services and China Evergrande New Energy Vehicle Group, without giving a reason. The three stocks would remain halted until further notice, it added in the latest announcement.

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Evergrande, the world’s most indebted developer with US$327 billion of liabilities, sparked a crisis in China’s property markets when it defaulted on its offshore debt two years ago. It has struggled to restructure US$20 billion of its offshore debt and claims just as the process entered its final leg this quarter.

The crisis has intensified as other major developers continue to face pressure as China’s economy slows, and big bets on the nation’s smaller cities have weighed on the ability of developers to pay their debts and finish properties.

Country Garden Holdings, the biggest developer by sales in 2021 and 2022, is the latest major developer to face concerns about its ability to service its debt.

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Evergrande’s Hui was last heard from in a voice clip circulated – and verified – by the company last December, in which he instructed his executives to speed up construction to ensure that homes under contract are delivered to customers. He last signed off the company’s exchange filings in Hong Kong on September 24.

Thursday’s trading halt came a month after the group emerged from a 17-month suspension. The company and its subsidiaries had a combined market capitalisation of HK$16.7 billion (US$2.1 billion) on September 27, a decline of nearly 80 per cent for their value before they resumed trading in August.

The Hang Seng Index fell 1.4 per cent on Thursday, while a gauge tracking 10 Hong Kong-listed mainland developers also lost 1.4 per cent to near a one-year low.

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Evergrande’s plight has been heating up some of China’s social media platforms in recent days with discussions about the fate of the world’s most indebted developer. Some had argued the penny stock was worth a punt, while others said bankruptcy may be inevitable.

Evergrande sought Chapter 15 bankruptcy protection in the US last month as it sought to restructure its offshore debt.

Last week, the company scrapped six creditor meetings scheduled for September 25 and 26, and disclosed it was unable to meet regulatory requirements to issue new bonds – a key plank in its restructuring proposal to cure US$20 billion of defaulted debt and claims. A winding-up petition in Hong Kong will be heard on October 30, having been adjourned several times since June 2022.

Houlihan Lokey, Evergrande’s external financial adviser, did not immediately reply to an email seeking comment on the status of the proposal. Moelis & Co, which is advising a committee of offshore creditors including global hedge funds and distressed-debt investors, also did not reply to a similar request.

Earlier this week, the crisis surrounding the company took another turn for the worse when its Hengda Real Estate Group unit failed to repay a 4 billion yuan (US$547 million) note on Monday, an obligation among the US$327 billion of liabilities choking the home builder. It was talking to bondholders about a solution on a “non-evasion of debt” basis, the company said at the time.

The unit is already under investigation by regulators for market breaches, a transgression that has crippled Evergrande’s ability to sell and list new bonds in offshore markets under China’s capital market rules. Several former executives have been detained over missing funds, local media outlet Caixin Global reported on Monday.

On Thursday, Evergrande separately said that Hengda had unpaid debts due of 278.5 billion yuan and overdue commercial bills of 206.8 billion yuan as of the end of August. Hengda was facing 1,946 pending litigation cases involving more than 449 billion yuan at the end of August, as well as 163 new enforcement cases that began in August, according to a stock exchange announcement.

“Recent investigation into Evergrande may help clear the way for government intervention,” Liu Jieqi and Damon Shen, analysts at UOB-Kay Hian Securities, said in a report on September 27. As sold-but-undelivered homes pose a risk to social stability, the developer may need state assistance and a new strategic shareholder to salvage the business, they added.