The founder of China’s Evergrande is being investigated over suspected “illegal crimes”, the group has said, as creditors become increasingly concerned about the prospects of the world’s most indebted property developer.
Evergrande Group, which has more than $300bn (£245bn) in total liabilities, did not say whether Hui Ka Yan was still in a position to run the company, or what crimes he was being investigated for.
The news came hours after trading in shares of the company was suspended following a report that Hui had been placed under police surveillance. Evergrande said the shares would remain suspended until further notice.
“The company hereby announces that the company has received notification from relevant authorities that Mr Hui Ka Yan … has been subject to mandatory measures in accordance with the law due to suspicion of illegal crimes,” Evergrande said.
The news signals for the first time that authorities could hold the billionaire founder accountable for the developer’s financial woes, which have ripped through the property sector that accounts for roughly a quarter of the Chinese economy.
Deepening turmoil in China’s debt-laden property sector is threatening to undermine Beijing’s efforts to get the sputtering economy back on more solid footing, and raising fears among investors of a spillover into the country’s banking system.
The latest development is a major blow to China’s once top-selling developer that has lurched from one crisis to another since its cash squeeze became public in 2021 and it defaulted on its offshore debt obligations later that year.
Evergrande has been working to get creditors’ approval for restructuring its offshore debt. The process became complicated this week after Evergrande said it was unable to issue new debt due to an investigation into its main China division.
The offshore debt restructuring plan now looks set to falter and the risks of the company being liquidated are rising, some analysts said.
Evergrande’s problems have raised the prospect of an intervention by the Chinese authorities to manage any possible impact on the financial system and the broader economy, analysts said.
“They’ve managed to avoid the ’bottom line’ of preventing a systemic crisis caused by one of the developers so far, and will almost certainly intervene further if Evergrande’s situation appears likely to lead to contagion,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.
“But apart from that, their approach … has often seemed conflicted and at times incoherent, and that continues today.”
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The Chinese media outlet Yicai, citing sources, said some other Evergrande executives were also being investigated.
Evergrande did not immediately respond to a Reuters request for comment outside Asia business hours.
Evergrande’s latest woes come against the backdrop of Beijing rolling out a series of measures in the last few weeks, including cutting existing mortgage rates, to revive the battered property sector.
On Thursday, the finance ministry said China would exempt from taxes urban land used for affordable housing projects starting in October. Buyers of such housing, and housing management firms, will also be exempt from stamp duties, the ministry said.
