BEIJING, September 28 (TMTPost)— Shares of China Evergrande Group along with its new energy vehicle unit and property services unit were suspended from trading in Hong Kong on Thursday, the day after head of the embattled property developer was said to be under surveillance amid worsening debt crisis.

Credit：Visual China

Evergrande’s founder and chairman Hui Ka Yan has been taken away by Chinese police earlier this month and is being under police control at a designated location, Bloomberg reported on Wednesday, citing people familiar with the matter. The report said it’s unclear why Hui is under so-called residential surveillance, which doesn’t mean the billionaire will be charged with a crime but he is not allowed to leave the location, meet or communicate with others without approval. Reuters’ sources later that day revealed Hui had stopped contacting staff in the past few days.

People close to Evergrande confirmed Bloomberg news, Chinese news website Guancha.cn, or Guanchazhe, reported late Wednesday. The people revealed Hui, now in a house in Beijing, is restricted from movements. Hui was absent from the past two regular meeting of Evergrande Group, one of which was supposed to be chaired by him, a person with knowledge told China Times, a financial newspaper sponsored by China Disabled Persons' Federation (CDPF). The person said he can’t confirm whether the report about his being under police surveillance is true. He added that what he knows is that the last time Hui made public remarks is he spoke at a WeChat group on September 13, urging local businesses to address sales restrictions.  

Evergrande, the world's most indebted property developer, first declared a default on its debt in late 2021 when the second largest property developer in China had a total of more than US$300 billion in liabilities. Financial reports disclosed in April showed the company’s debt load reached RMB2.44 trillion as of December 31, 2022, reducing RMB140 billion from late 2021. The insolvency gap increased from RMB 473.1 billion to RMB599.1 during the year 2022.

A number of Evergrande officials were under investigation prior to Hui Ka Yan’s reported being under surveillance. The first executive to be taken away was Ke Peng, the former executive president of Evergrande Group, who was nabbed by the police for investigation in January in connection with his involvement in Evergrande's Shenzhen’s shanty town revamping. On September 16, Du Liang, the general manager of Evergrande Wealth Management, Evergrande's financial subsidiary, and other individuals suspected of crimes were taken into custody by the Shenzhen police. Last Thursday, Zhu Jialin, the former Chairman of Evergrande Life Assurance, was reported to be under investigation.

Hui Ka Yan’s news increased uncertainty about Evergrande’s future as recent statements surprisingly renewed concerns about the developer’s survival. 

Evergrande disclosed it won’t hold meetings about proposed debt restructuring on September 25 and 26. In a filing with the Hong Kong Stock Exchange (HKEX) on Friday, the property developer said it made the decision to cancel the planned meeting because of worse-than-expected sales since it announced the meeting schedule in March. “Based on the company’s current situation and consultations with its advisors and creditors, the company considers it necessary to re-assess the terms of the proposed restructuring to meet the company’s objective situation and the demand of the creditors,” it said. While not elaborating creditors’ demand, the company said it would make public statement if there were any change about terms of restructuring proposal.

The cancellation of meeting due to sales was a surprise as Evergrande just posted improved financial performance last month. In a report of interim financial results to HKEX in August, the company posted net loss of RMB33 billion (US$4.53 billion) from January to June, narrowing more than 40% from a RMB66.4 billion loss in the same period last year. Operating losses in the first half of the year were RMB17.38 billion, more than 64% down from a year earlier, and Losses related to return of lands, impairment losses on financial assets and other non-operating losses narrowed 55% to RMB15.03 billion. Revenue in the first half jumped 44% year-over-year (YoY) to RMB128.18 billion, and gross profit rose 38% to RMB9.8 billion.  

In the interim report, Evergrande vowed to assume responsibility of self-rescue and risk resolving, ensure all the work related to home delivery well done, sustain operations of automobile, property service and other businesses, actively introduce external quality resources, and accelerate offline debt restructuring to protect creditors’ long-term interests.

Days after announcing dropping the restructuring meeting plan, Evergrande said it is currently unqualified for issuance of new notes as its subsidiary Evergrande Real Estate Group Limited is under investigation by the China Securities Regulatory Commission (CSRC), China’s top securities regulator. In a filing with HKEX on Sunday, Evergrande said it has to prove that any proposal of new debt issuing under restructuring has complied with the Trial Administrative Measures for Overseas Securities Offering and Listing of Domestic Companies released by CSRC and the Administrative Measures for the Review and Registration of Mide-to-Long-Term Foreign Debt of Companies introduced by the National Development and Reform Commission (NDRC).