Evergrande, the embattled Chinese property group, recently announced that its billionaire chair, Hui Ka Yan, was under investigation for suspicion of “illegal crimes.” The announcement, which lacked details, reflects the overall uncertainty surrounding Evergrande as it grapples with a series of challenges. These include the detainment of employees from its wealth management subsidiary, a derailment of its restructuring plan, and missed payments on onshore bonds. The future of Evergrande, which has over $300 billion in liabilities, appears closely tied to Beijing, as policymakers are under pressure to address the property slowdown that continues to impact China’s economy.
Investors in Evergrande’s offshore debt were scheduled to vote on a plan that would have resulted in receiving new notes linked to the equity of the company’s Hong Kong-listed subsidiaries. However, the plan was derailed due to an official investigation, the details of which remain unclear. Evergrande has engaged US firm Houlihan Lokey and law firm Sidley Austin as it navigates the offshore restructuring. Investors, who hold approximately $20 billion in international debt, had previously threatened legal action and expressed frustration over a lack of engagement. While the restructuring suffers a setback, parties involved still aim to avoid a wind-up scenario, as a collapse of Evergrande would have far-reaching consequences.
The investigation into Hui and the challenges faced by Evergrande highlight the complex situation surrounding the company. The restructuring discussions have been marked by strategizing and attempts to reconstruct plans in a way that avoids conflict with regulators. Experts suggest that both investors and regulators have a stake in the survival of Evergrande. A wipeout of the company’s dollar bonds could worsen its situation and negatively impact China’s offshore debt issuance, which the country seeks to attract. Meanwhile, authorities are sensitive to market turbulence, and their approach to easing restrictions in the property sector has shown signs of change. Overall, the fate of Evergrande remains uncertain, and the lack of clarity surrounding decision-making adds to the difficulties faced by the company’s restructuring efforts.