Pressure on Evergrande with chairman under police supervision, liquidation risk

Hui Ka Yan, chairman of Evergrande Real Estate Group Ltd, the country’s second-largest real estate developer by revenue, attends a press conference on annual results in Hong Kong, China, March 29, 2016. REUTERS/Bobby Yip/File photo Obtain licensing 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, raising more doubts about the embattled developer’s future as it also struggles with rising prospects on liquidation.

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

It was not clear why Hui was placed under residential surveillance, Bloomberg News said. The action was a type of police action that does not constitute formal detention or arrest and does not mean Hui will be charged with a crime.

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

Evergrande is the world’s most indebted real estate developer and has been at the center of an unprecedented liquidity crisis in China’s real estate sector, which represents about a quarter of the world’s second-largest economy.

Once China’s best-selling developer, Evergrande’s financial crisis became public in 2021 and since then the country and a string of its peers have defaulted on their foreign debt obligations amid slowing home sales and fewer new fundraising opportunities.

Hui’s reported move to go into administration comes as the offshore debt restructuring plan, key to survival amid a suffocating cash crisis, appears to be faltering and prospects of liquidation are growing stronger.

Reuters reported on Tuesday that a major offshore creditor group from Evergrande planned to join a liquidation court petition filed against the developer if it did not submit a new debt restructuring plan by the end of October.

That plan comes after the company roiled markets on Sunday with the announcement that it could not issue new bonds as part of its debt restructuring plan due to a regulator 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 September 25.

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

COUPON PAYMENT

The latest woes for Evergrande come as investors are also focusing on another major Chinese developer, Country Garden (2007.HK), which faces a new bond coupon repayment deadline on Wednesday.

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

The country’s No. 1 private developer, whose financial troubles worsened the outlook for the property sector and prompted Beijing to unveil a raft of support measures in recent weeks, successfully sought to avoid bankruptcy this month.

Offshore creditors widely expect Country Garden to delay Wednesday’s coupon payment while taking advantage of the grace period to come up with plans to restructure all foreign debt.

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

“The fall of industry strength in China’s real estate sector is alarming to say the least,” said Fiona Kwok, Asian fixed income portfolio manager at First Sentier Investors.

“Until Chinese regulators implement a stimulus large enough to inject optimism into the real estate market and increase property sales, the risk of default will remain high among private and mixed-use developers.”

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