China Evergrande Group‘s shares plummeted by 25% on Monday following the detention of several employees from its wealth management division by the police. Recognized as the globe’s most debt-laden property developer, Evergrande is at the heart of a tumultuous phase in China’s property market which has led to numerous defaults since late 2021, causing global market disturbances and concerns of a ripple effect.
Evergrande Case: In the summer of 2021, Evergrande faced a liquidity crisis due to massive debt payments, contributing to a significant stock market decline on 20 September 2021. Despite its vast debt, by November 2021, Evergrande’s assets, including land reserves and properties, were valued at nearly RMB 2 trillion. However, by 17 December 2021, S&P Global declared Evergrande in default after a missed bond payment. Trading of Evergrande shares was briefly suspended in January 2022, but upon resumption, they surged by 10%. By March 2022, the share price plummeted to an all-time low. The company reported losses of 476 billion yuan in 2021 and 106 billion yuan in 2022.
The company’s stock trading was halted for 17 months and only resumed on Aug. 28. Evergrande has yet to comment on the police’s move. The company’s stock value dropped to its lowest in two weeks at HK$0.465 during early trading but recovered slightly, showing an 11% decline by 0200 GMT. This contrasts with a 0.9% decrease in the broader Hang Seng Index (.HSI).
Over the weekend, Shenzhen police announced via social media that they had taken “criminal compulsory actions” against Du and other alleged offenders from Evergrande Financial Wealth Management Co.
The police didn’t specify the number of detainees, the accusations, or the arrest date. According to his LinkedIn profile, Du Liang is the general manager of Evergrande Financial Wealth Management. The BBC could not verify whether he was among those detained by police.
In the previous month, Evergrande reported a net loss of 33 billion yuan ($4.5 billion) for the first half of the year, compared to a 66.4 billion yuan loss during the same timeframe in the prior year. Additionally, Evergrande recently postponed its decision on offshore debt reorganization from September to the upcoming month, giving its debt holders more time to evaluate its restructuring proposal.
