China’s Evergrande Shares Halt Trading After News That Chairman Under Police Surveillance

Evergrande's president Xu Jiayin, also known as Hui Ka Yan in Cantonese, attending a meeting in Wuhan, in China's central Hubei province on June 5, 2017. STR / AFP via Getty Images

Shares of the indebted real estate developer China Evergrande Group plummeted on Wednesday following reports that the company’s chairman is being held by the police.

Trading was then halted without explanation on Thursday morning for Evergrande Group and two of its Hong Kong-listed units, according to media reports.

Evergrande Chairman Hui Ka Yan had been taken away by Chinese police earlier this month and lives under surveillance at a designated location, Bloomberg reported on Wednesday.

The report, citing anonymous sources, said it’s not clear why Mr. Hui was placed under residential surveillance. The measure doesn’t mean that Mr. Hui was formally arrested or will be indicted, it noted. Under the regime’s law, China’s police have the right to hold anyone, either a Chinese or foreigner, in a designated place for up to half a year. Inside these secret facilities, their communication and access to the outside is limited.

Citing several unnamed people familiar with the matter, Shanghai-based Chinese media outlet Guancha said on Wednesday it has confirmed Bloomberg’s report, noting that it just happened “several days” ago. Mr. Xu is in a residence in Beijing and subjected to some restrictions on his movement, it added.

The Epoch Times is unable to independently confirm the reports. Evergrande did not immediately respond to a request for comment.

With more than $300 billion in debt, Evergrande has become a poster child of the liquidity crisis in China’s real estate sector, which accounts for about a quarter of its gross domestic product (GDP).

Following the report, Evergrande’s shares ended down 19 percent at 0.32 Hong Kong dollars on Wednesday afternoon. Despite the slight rise in the early trading, the company’s stock has fallen nearly 42 percent this week.

Hang Seng Mainland Properties Index, an index tracking mainland developers listed in Hong Kong, fell 0.2 percent on Wednesday.

This aerial photo shows the halted under-construction Evergrande Cultural Tourism City in Taicang, Suzhou city, in China's eastern Jiangsu Province, on Sept. 17, 2021. Vivian Lin/AFP via Getty Images

Evergrande grew rapidly through a land-buying spree backed by loans and by selling apartments quickly at low margins, making Mr. Hui Asia’s richest man in 2017, according to Forbes.

But with its overall liabilities ballooning to more than $300 billion, it came under pressure as the property market weakened and Chinese regulators cracked down on companies with high levels of debt. Analysts have said the tightened regulations chime with the communist regime’s sweeping crackdown on tech giants and the communist party’s recent “common prosperity” drive.

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.

The giant developer’s stock had been suspended for 17 months and recently filed bankruptcy protection in New York as it attempts to restructure its debts.

On the evening of Sept. 24, Evergande announced that it was unable to issue new notes because its main domestic unit, Hengda Real Estate, was being investigated.

Hengda then missed its Sept. 25 deadline to pay its bond and interest totaling 4 billion yuan ($547 million), the company said in a separate filing that day.

Adding to its woes, recent reports indicated the company is also dealing with Chinese police. Police said earlier this month that some employees at Evergrande’s wealth management division had been detained.

The recent developments have rekindled fears of the firm’s collapse, as well as its spillover effects on the broader economy.

The company is “very likely to fail on debt restructuring, and with negative equity, Evergrande may go into bankruptcy, which includes bankruptcy reorganisation and bankruptcy liquidation,” UOB Kay Hian wrote in a note on Wednesday.

As the developer’s already sold but unfinished apartments will pose a risk to “social stability,” there is a good chance that Evergrande will likely seek bankruptcy reorganisation, the brokerage said.

Reuters contributed to this report.