In a filing with the Hong Kong Stock Exchange on Thursday, the developer said it had “received a notification from the relevant authorities” that Hui is “subject to mandatory measures in accordance with the law due to suspicion of illegal crimes.” The developer would suspend trading “until further notice”.
The confession confirms earlier reports that the billionaire developer was in some form of police custody. On Wednesday, Bloomberg reported that Chinese law enforcement officials have placed Hui under “residential surveillance,” a measure that limits him to one location and blocks communications from outside without permission. (Such measures last no longer than six months and do not always lead to criminal charges, according to Bloomberg).
Evergrande’s shares have only been back on the market for a month, resuming trading on August 28. During that period, Evergrande shares fell more than 80%, from $0.21 to $0.04. (Evergrande shares traded around $4 at their peak in 2017).
Evergrande is at the heart of China’s real estate crisis, which has also hit fellow real estate giant Country Garden and others. Evergrande was once one of China’s largest developers, loading up on debt to finance its expansion. But new rules from Beijing, intended to encourage developers to reduce their risk, instead led to a liquidity crisis.
When funding dried up, Evergrande defaulted on its debts in December 2021, causing other developers to default as well.
Evergrande lost a combined $81 billion in 2021 and 2022, according to financial results released earlier this year as it prepared to resume trading in its shares.
In August, the company said it had lost another $4.5 billion in the first half of 2023 and reported $327 billion in liabilities against $238 billion in assets, according to a stock exchange filing in August when stock trading resumed.
Evergrande is having a very bad week
Evergrande’s trading suspension ends days of bad news. On Friday, the company canceled key meetings with its creditors where lenders were due to review the debt restructuring plan. The company said revenue was lower than expected due to the delay.
Then Evergrande announced on Sunday that it would be unable to issue new debt due to a regulator investigation into its main domestic subsidiary. Monday, Chinese outlet Caixin reported that police had arrested Evergrande’s former CEO and CFO, along with other executives, as part of an investigation into whether the company had misused funds.
Finally, Evergrande missed another bond payment on Monday, this time on a yuan-denominated bond worth $547 million.
Evergrande doesn’t have long to find a solution. On October 30, the Hong Kong courts will hold a hearing on a ‘liquidation petition’, which, if successful, will liquidate the company.
Some of Evergrande’s lenders are ready to give up, while some foreign creditors told Reuters they would be willing to support the liquidation if Evergrande did not present a viable restructuring plan by the end of October.