The announcement is hardly surprising. Xu Jiayin, the boss of promoter Evergrande, was placed under house arrest this month, the Bloomberg agency revealed on Wednesday September 27, citing sources close to the matter. Information confirmed Thursday September 28 by Evergrande. “The company has been notified by the competent services according to which Mr. Xu Jiayin (…) is the subject of coercive measures due to suspicion of a crime or misdemeanor in violation of the law”indicates the group in a press release published on the Hong Kong Stock Exchange, where the group is listed. The arrest was almost expected.
In August, the most indebted developer in the world, with 340 billion dollars (322 billion euros) in debt, announced that it was the subject of an investigation by the Chinese Market Regulatory Commission. And the Shenzhen city police indicated on September 16 that they had arrested several employees of the real estate group.
This investigation prevents the company from issuing new bonds, necessary to restructure its current debt, which appears to be at an impasse. The group, whose listing has once again been suspended on the Hong Kong Stock Exchange, has also canceled two investor meetings scheduled for September 25 and 26 on this subject.
Concrete carcasses
Since its first unpaid loan repayment just two years ago, Evergrande has experienced a descent into hell, and dragged down the entire Chinese real estate sector with its downfall. Investors have not been reimbursed, and thousands of subcontractors and workers have not been paid for their work, bringing hundreds of construction sites across China to a halt.
Enough to undermine the confidence of households, who no longer buy, for fear of becoming owners of concrete carcasses that are never finished. As a result, real estate sales plunged 19.1% year-on-year in August, and at least 80 other Chinese developers have defaulted over the past two years.
Today, the authorities’ priority is to ensure that ongoing projects are completed to restore confidence among individuals: intervention by local authorities to revive abandoned projects, credit lines opened by banks under close control of financial authorities, etc. The restructuring of Evergrande’s debt is more complicated: so far, the company has failed to convince the necessary 75% of its creditors to validate a rescue plan. Ultimately, the company could be dissolved. Other developers could be interested in certain assets, but many of them, located in small, unattractive towns, risk never finding a buyer.
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