Shares of embattled Chinese developer Evergrande plunged by 18.99% in afternoon trading in Hong Kong on Wednesday amid intensifying fears that the group faces liquidation.
The key reason for the latest stock plunge appears to be a report that Hui Ka Yan, chairman of China Evergrande Group, has been placed under police surveillance.
The news is not surprising, perhaps, given the precarious state of the developer’s huge debt crisis and reports that police were investigating some of the group’s executives.
Media outlets said Hui, who founded Evergrande in the southern city of Guangzhou in 1996, was not in detention or under arrest but being monitored.
Reuters could not immediately verify the latest report. Evergrande, the police department in Guangdong province, whose capital is Guangzhou, and the public security ministry did not immediately respond to a request for comment.
Evergrande is the world’s most indebted property developer and has been at the centre of an unprecedented liquidity crisis in China’s property sector, which accounts for roughly 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 a string of its peers have defaulted on their offshore debt obligations amid slowing home sales and fewer new avenues for fundraising.
Speculation about Hui being under surveillance comes as its offshore debt restructuring plan, the key to its survival amid a stifling cash crunch, looks set to falter and the prospects of it being liquidated gather momentum.
On Tuesday it was reported that a major Evergrande offshore creditor group was planning to join a liquidation court petition filed against the developer if it does not submit a new debt revamp plan by the end of October.
That plan comes after the company rattled markets on Sunday with its announcement that it could not issue new bonds as part of its debt restructuring plan because of a regulatory investigation into its main Chinese unit, Hengda Real Estate.
Hengda, in a separate filing on Monday, said that it had failed to pay the principal and interest on a 4 billion yuan ($547 million) bond due by a September 25 deadline.
Shares in Evergrande plunged in afternoon trade in the Hong Kong market on Wednesday.
The latest woes for Evergrande come as investors are also focused on another major Chinese developer, Country Garden, which is facing 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 dollar bond that 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 woes worsened the property sector outlook and prompted Beijing to unveil a raft of support measures in the last few weeks, scrambled to successfully dodge defaults this month.
Offshore creditors widely expect Country Garden to delay Wednesday’s coupon payment, while making use of the grace period to come up with plans to restructure all of its offshore debt.
A Country Garden spokesperson did not immediately respond to a request for comment.
“The fall of industry stalwarts in China’s property space has been alarming, to say the least,” Fiona Kwok, Asian Fixed Income portfolio manager, First Sentier Investors, said.
“Until Chinese regulators come through with stimulus significant enough to inject optimism into the property market and increase property sales, default risk remains high among private and mixed ownership developers.”
NOTE: This report was amended on Sept 27, 2023 to give the size of the stock fall at closing time at the Hong Kong Stock Exchange.
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