The saga of China’s second-largest development firm has escalated from a financial crisis to a potentially criminal one with the investigation and detention of Evergrande chairman and founder, Hui Ka Yan.
The company resumed trading on Tuesday after it was suspended last week in the wake of media reports of Hui’s apprehension. But analysts say signs point to a potential liquidation of the company, which could have drastic ramifications for China’s economy too.
“The Chinese government clearly intended its actions regarding Evergrande to be helpful to the real estate market, as it wants to stabilise it, not weaken it further,” said professor Steve Tsang, director of the Soas China Institute. “But the arrest of Hui almost certainly will make the situation worse for Evergrande and with this worse for the real estate market.”
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Since regulations were tightened in 2020, companies responsible for about 40% of Chinese home sales have defaulted, and another major firm, Country Garden, has also battled to avoid missing massive debt repayments, raising the prospect of the risk of contagion.
“Country Garden is as big a problem” as Evergrande in terms of the health of China’s real estate and commercial sectors, said Alicia Garcia-Herrero, chief economist for Asia Pacific at French investment bank Natixis.
“If it takes too long to restructure Evergrande the chances of Country Garden having to go through the same are really high.”
Evergrande’s fate may become more apparent at a hearing in a Hong Kong court, scheduled for 30 October, according to Bloomberg.
The rise and fall
Hong Kong-based Hui, whose name is Xu Jiayin in Mandarin, was raised by his grandmother in central Henan. He founded Evergrande in Guangzhou in 1996, taking on massive debt to rapidly expand the company, with thousands of developments across China, and take it public in 2009. As of June it owned land reserves of 190 square kilometres.
Hui was at one time China’s third-richest man. His personal fortune peaked at more than US$36bn in 2019, according to Forbes, before plunging to an estimated $3.2bn by early 2023.
The trouble began in 2021. Amid Chinese government concerns about high debt levels in the property industry, a regulatory crackdown meant Evergrande found itself unable to make interest repayments on more than US$300bn in debt, sending China’s housing development sector into a liquidity crisis.
In August, Evergrande filed for bankruptcy in the US, to protect its US assets as it attempts to restructure its finances.
Last month Hengda Real Estate, Evergrande’s primary unit in mainland China, missed principal and interest payments on a 4bn yuan bond.
In September several employees of Evergrande’s wealth management unit were also arrested in Shenzhen, on unspecified charges.
Last week,…
2023-10-04 23:06:36
Source from www.theguardian.com