Evergrande Chairman’s Arrest Signals New Twist in Company’s Bankruptcy Saga

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

Hui Ka Yan, the chairman of China’s Evergrande Group, was taken by Chinese police in early September and is reportedly being monitored at a “designated” location, reported Bloomberg. Around that time, the billionaire was filing for bankruptcy for his company through a court in the United States.

Mr. Hui—whose name in Mandarin Chinese is Xu Jiayin—was also reportedly transferring his family’s assets overseas during this time in moves allegedly involving his ex-wife, Ding Yumei. Meanwhile, his son Peter Hui has also been arrested, as have other Evergrande executives.

Ms. Ding flew out of Hong Kong before August and now lives abroad, China’s Tencent News reported. She had been in Hong Kong since Evergrande’s first debt default in 2021 and was reportedly there to assist in restructuring Evergrande’s debts.

Ms. Ding’s previous public capacity was as the chairperson of the board of directors of Evergrande. She had a net worth of $2.4 billion in 2019. According to the Hong Kong Companies Registry, she holds Chinese and Canadian passports. The Chinese regime does not recognize dual citizenship.

The arrest of the 68-year-old Mr. Hui had been widely speculated after Evergrande’s failures two years ago. Mr. Hui seems to have been prepared for the potential risk of losing family assets when Evergrande ran into financial trouble, and he divorced Ms. Ding quietly this year, sometime before June.

On Aug. 14, Ms. Ding was listed as “independent of the Company and its affiliates as a third party“ in Evergrande Auto’s share placement announcement. This title implies that Ms. Ding and Mr. Hui were no longer a married couple, which fueled the belief that their divorce was a strategic maneuver, with the wealth going to Ms. Ding and the debts going to Mr. Hui’s Evergrande.

In an Evergrande Properties shareholding filing disclosed by the Hong Kong Stock Exchange on Dec. 14, 2022, Mr. Ding was listed as Mr. Hui’s spouse. This status continues until the end of 2022. In the 2022 Evergrande Property Group annual report published Dec. 14, that year, Ms. Ding was referred to as “Mrs. Hui,” but in the 2023 interim report,  published Sept. 26 this year, neither “Mrs. Hui” nor “Ding Yumei” were found in the list of major shareholders.

The Evergrande logo is seen on residential buildings in Nanjing, in China's eastern Jiangsu province, on Aug. 18, 2023. AFP via Getty Images

Where’s the Money?

According to Evergrande’s public data, from 2016 to 2020, the group’s annual dividends totaled 93.933 billion yuan (about $13.42 billion). Among them, in 2020, the dividends were 57.779 billion yuan (about $8.25 billion), accounting for 61.5 percent of the total.

An anonymous senior observer in corporate governance in Hong Kong told Chinese media 21st Century Business Herald— that before the Evergrande Group accumulated more than $13.4 billion in dividends, Mr. and Mrs. Hui transferred, before and after the debt default in 2021, most of their dividends to offshore companies that they own in the British Virgin Islands and the Cayman Islands.

Most of that money is technically now in the pocket of the “ex-wife”.

In addition, before Mr. Hui filed for Evergrande’s bankruptcy on Aug. 17, his son received a family trust fund amounting to approximately $330 million.

This questions whether Ms. Ding is now financially immune from Evergrande’s liabilities. According to Article 1064 of the Chinese Civil Code, debts incurred by both husband and wife under their joint signatures or by one of the spouses in retrospect during the marriage are joint debts of the husband and wife. Therefore, according to this provision in Chinese law, Mr. Ding, even if divorced, cannot be excluded from her joint debt with her former husband.

Evergrande and Ms. Ding did not respond to The Epoch Times’ request for comment.

A woman rides a scooter past the construction site of an Evergrande housing complex in Zhumadian, central China's Henan province, on Sept. 14, 2021. Jade Gao/AFP via Getty Images

Hui’s US Bankruptcy Filing Stalled

Evergrande’s financial report in July showed that the company was already insolvent. As of the end of 2022, total liabilities amounted to 2.44 trillion yuan (about $348.6 billion), and total assets amounted to 1.84 trillion yuan (about $262.9 billion).

Taiwan’s Central News Agency reported on Sept. 27 that Evergrande filed for protection against bankruptcy under the U.S. Bankruptcy Code on Aug. 18, which alerted the relevant Chinese authorities. In September, the Chinese regime launched investigations and arrested Mr. Hui and other executives to prevent Evergrande’s capital from flowing out of the country.

Mr. Hui previously used a variable interest entity (VIE) structure to transfer Evergrande’s shareholding to the Cayman offshore company, and then, through the VIE, he indirectly controlled Evergrande while dodging substantive legal responsibility. That is to say, when Evergrande fails in China, it would be difficult to hold Mr. Hui accountable.

In the past few years, Evergrande reportedly issued lots of overseas high-interest corporate bonds that only Mr. Hui’s family and relatives could buy. This resulted in a large amount of capital being converted into foreign exchange to pay interest to avoid China’s capital controls. This was a means of transferring money from China to overseas and a way of hollowing out Evergrande.

In 2018, Mr. Hui spent his own money to buy Evergrande’s U.S. dollar bonds issued outside China, with a coupon rate of 13.75 percent and went from a shareholder to a creditor of Evergrande.

Meanwhile, Evergrande’s assets were transferred overseas by Mr. Hui and his close associates, leaving the company full of debt in China. The only way for Mr. Hui to avoid being held liable for his China debts is to get protection against bankruptcy in the United States, which first involves restructuring the company.

China Evergrande Group chairman Hui Ka Yan attends a news conference on the property developer's annual results in Hong Kong on March 28, 2017. Bobby Yip/Reuters

Evergrande’s reorganization must be voted on and approved by its creditors. This is the only way for the U.S. court to approve protection against bankruptcy. Since Mr. Hui’s family members bought Evergrande’s U.S. dollar bonds, they are the company’s creditors. So, as long as they approve the restructuring plan, the U.S. court is likely to approve the bankruptcy petition.

Evergrande announced its overseas debt restructuring plan in March. Shares trading resumed on the Hong Kong Stock Exchange on Aug. 28 after being suspended since March 2022, indicating that some progress had been made in the debt restructuring.

Since Chinese authorities made their arrests in September, Evergrande aborted its debt restructuring meetings. Without a restructuring plan, the company’s future may be liquidation, leaving Mr. Hui’s bankruptcy filings in the United States in jeopardy. Evergrande had planned to work out its next step in its debt restructuring meetings, but with the arrest of Mr. Hui, these meetings have been aborted.

Shares trading was suspended again on Sept. 28 following the news that Mr. Hui was placed under police watch. They resumed trading in Hong Kong on Oct. 3.

The Epoch Times were unable to contact Evergrande or Evergrande’s creditors for comment.