Evergrande founder Hui Ka Yan under house arrest. What will happen to the real estate group now?
The founder of Evergrande Group is under investigation for suspected "illegal activities", the troubled builder said on Thursday, as creditors grow increasingly concerned about the group's prospects amid uncertainty over its debt restructuring plan and the risk of liquidation.
The most indebted real estate developer in the world, with over $300 billion in total debts, has not said whether Hui Ka Yan, the founder, is still able to manage the company, nor for what crimes he is being investigated.
Trading in the company's shares was suspended earlier today after news that its chairman had been placed under police surveillance. Evergrande said the shares will remain suspended until further notice.
“The Company communicates that it has received notification from the relevant authorities that Mr. Hui Ka Yan… has been subjected to mandatory measures in accordance with the law due to suspicion of illegal crimes,” Evergrande said. The measures in question are house arrest under police supervision.
The news signals for the first time that authorities may hold Evergrande's billionaire founder responsible for the builder's financial problems, which have affected the real estate sector that accounts for about a quarter of China's economy.
The worsening turbulence in China's debt-laden real estate sector risks undermining Beijing's efforts to put the struggling economy back on a more solid footing and making investors fear a fallout on the country's banking system.
The latest development is a blow to the once top-selling Chinese automaker, which has lurched from crisis to crisis since its liquidity crisis became public in 2021 and later defaulted on its its offshore debt obligations.
“It is not clear why Hui is under police surveillance, but it could be a sign of some negotiations requested by the government. This latest development has upended restructuring hopes,” said Gary Ng, senior economist for Asia and the Pacific at Natixis.
“No entrepreneur is too big to fail in China and therefore it is difficult to imagine a total bailout. However, when it comes to stability, you can see greater government influence in several ways,” Ng added. Evidently the concept of "Too big to fail" is specific only to overcooked and now anarchic financial markets like the American and European ones.
Evergrande is working to get creditors' approval to restructure its offshore debt. The process became more complicated this week after Evergrande said it could not issue new debt due to an investigation into its main China unit.
According to some analysts, the offshore debt restructuring plan now looks set to falter and the risk of the company's liquidation is increasing.
So far the Chinese government has managed to avoid the complete collapse of the financial and real estate system, but the accusation against Hui, who began his entrepreneurial climb in 1996, risks bringing the situation to a point from which there is no turning back .
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The article The founder of Evergrande Hui Ka Yan under house arrest. What will happen to the real estate group now? comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/il-fondatore-di-evergrande-hui-ka-yan-ai-domiciliari-che-succedera-ora-al-gruppo-immobiliare/ on Fri, 29 Sep 2023 20:26:40 +0000.