China’s economy is in meltdown after investors were banned from buying stocks in China Evergrande Group – one of the country’s leading property developers.
It came after a new report said CEG chairman, Hui Ka Yan, had been placed under police watch by the Chinese authorities, with his moves tracked by cops.
The firm, which is said to be the second-biggest developer with regard to sales in China, and its future have been placed firmly under the microscope in recent weeks after it emerged it was at risk of liquidation.
CEG has more than £250billion in liabilities – a figure so high that it is equivalent to Finland’s gross domestic product – but it has been rocked by the debt crisis in China’s property sector.
On Thursday trading in CEG shares, and two of its units, were suspended – less than 24 hours after Bloomberg reported Hui had been led away by cops and was being monitored.
It is unclear why Hui was under surveillance, but it adds to the chaos surrounding CEG, which has been working to get approval to restructure its offshore debt.
Further obstacles were unearthed as CEG then said it would be unable to issue new debt to help it out of the crisis as a result of an investigation into its main China hub.
Should CEG be unable to restructure its offshore debt, the company risks being liquidated, experts say.
According to Reuters, on Tuesday a CEG offshore creditor group was putting together a blueprint for joining a liquidation court petition that was filed against the developer.
This threat would be acted upon if a new debt revamp plan was not forthcoming by the end of October.
Gary Ng, Asia Pacific senior economist at Natixis, a French corporate and investment bank, said: “It is unclear why Hui is under police surveillance, but it may signal certain negotiations demanded from the government.
“The latest development has disrupted the hope of restructuring.
“No developer is too big to fail in China, and therefore it is hard to imagine a full bail-out. Still, when it comes to stability, it is possible to see more government influence in different ways.”
CEG shares plummeted on Wednesday, ending 19 percent down by the close of play in the Hong Kong market.
This took its losses to 81 percent since trading resumed in late August following a 17-month suspension.
Beijing has moved to try and alleviate the pressure on its property market by starting new measures including the cutting of existing mortgage rates in a bid to revive the battered property sector.
Redmond Wong, Saxo Greater China Market Strategist, said the easing was a move to help stabilize the market, adding: “Still, the overhang of housing inventories in lower-tier cities facing population decline will persist for several years.
“This will lead to more headlines about defaults, restructuring, and liquidation of insolvent developers, causing losses for shareholders, bondholders, banks, and investors in trust and wealth management products tied to property projects.”
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