Chinese authorities are investigating whether Evergrande Group chairman Hui Ka Yan tried to transfer assets offshore while the debt-laden developer grappled with swathes of unfinished projects, the Wall Street Journal reported on Monday.
The report, which cited people with knowledge of the matter, followed Evergrande’s admission in a regulatory filing late last week that Hui was apprehended by police over suspicions he had committed “illegal crimes”.
The update came after unverified media reports of police action against Hui triggered another big sell-off of Evergrande’s already battered stocks.
Trading in the shares of Evergrande and two of its key units was suspended on Thursday.
Earlier this month, Chinese police also apprehended staff of China Evergrande’s Shenzhen wealth management unit. Officials said they were investigating “suspected criminals at Evergrande Financial Wealth Management Co” and appealed to investors to report any financial crimes.
Police scrutiny of Evergrande, and now its chief, has further complicated debt restructuring efforts by the world’s most indebted property developer.
The South China Morning Post reported on Friday that Hui’s arrest casts doubt on his ability to fulfil multiple offshore creditor agreements, in which he is a sponsor.
Debt restructure doubts
That added to complications outlined by Evergrande itself last week, when it said it could not issue new debt due to an investigation into its main China unit, Hengda Real Estate Group.
Analysts said the development meant Evergrande’s debt restructuring plan could not “go any further.
Evergrande has more than $300 billion in liabilities — roughly the size of Finland’s economy. Evergrande’s debt struggles — which rocked Chinese and global markets when they came to light in 2021 — have made the developer the poster child of a debt crisis in China’s property sector.
Meanwhile, a group of Evergrande’s offshore creditors said last week it was planning to join a court petition to liquidate the developer if it did not submit a new debt restructuring plan by the end of October.
The creditor group holds a large portion of Evergrande offshore bonds and, if it decides to join, would add more weight to the petition filed against the developer by an investor in a Hong Kong court.
The group has been in favour of finding a restructuring resolution for Evergrande’s debt, but said the developer’s announcement on the complications posed by Chinese investigation into Hengda reduced their hopes of a restructure.
Under the original plan, reached after months of negotiations with creditors, Evergrande proposed to restructure offshore debt worth $31.7 billion.
The debt had included bonds, collateral, and repurchase obligations, which Evergrande proposed to restructure through various options, including swapping some of the debt into new bonds with maturities of 10 to 12 years.
- Reuters, with additional editing by Vishakha Saxena