Evergrande Says Chairman Suspected of Crimes, Subject to “Mandatory Measures”

In an announcement to the Hong Kong stock exchange late on the eve of China’s Mid-Autumn Festival holiday on Thursday China Evergrande Group followed up on media reports that its chairman is in police custody with a confirmation of criminal enforcement activity against him.

“The Company hereby announces that the Company has received notification from relevant authorities that Mr Hui Ka Yan, an executive director of the Company and chairman of the board of directors of the Company, has been subject to mandatory measures in accordance with the law due to suspicion of illegal crimes,” Evergrande said in its statement to the bourse.

The announcement came after Evergrande on Sunday had acknowledged that its primary mainland unit Hengda Real Estate is under investigation. With trading of its stock having been halted earlier that day, the developer said its shares would remain suspended until further notice. Trading in shares of the company’s electric vehicle and property management units was also frozen on Thursday.

In a separate statement less than half of an hour later, the company which had been China’s second-largest developer by sales before defaulting on offshore bonds in 2021, gave an update on its financial situation showing that it is involved in 1,946 pending litigation cases of over RMB 30 million ($4.1 million) each totalling approximately RMB 449 billion.

Held in a Residential Location

Local media had reported earlier this week that Evergrande’s chairman, who is also known by his Mandarin name Xu Jiayin, was being held in a residential location, but was not yet formally detained or arrested.

The company’s former chief executive Xia Haijun and ex-chief financial officer Pan Darong were reported by mainland media outlet Caixin earlier this week to have been detained in an investigation of potential financial crimes by Evergrande.

Both Xia and Pan were forced to resign from Evergrande in July last year with the company indicating that they had been involved in a scheme to illicitly funnel money to the developer as it struggled to pay its bills.

In its second announcement Thursday night, Evergrande said that its primary mainland unit, Hengda Real Estate had unpaid debts of RMB 279 billion as of the end of August and that its unpaid bills amounted to RMB 207 billion.

Evergrande Group has offshore debts of $31.7 billion, with the company within the past week having shelved an attempt to reach a restructuring agreement with creditors for those liabilities as mainland regulators have forbidden it from issuing new bonds. News reports in recent days indicated that a growing number of Evergrande’s offshore creditors favour liquidation of the company.

Naughty Bosses Punished

The fate of Evergrande’s chairman follows a familiar pattern for Chinese bosses guilty of creating financial disasters.

In 2021 HNA Group chairman Chen Feng, who had set records for Hong Kong land acquisitions and bought out US tech distributor Ingram Micro for $6 billion before running the company into bankruptcy, was detained by police just one week after HNA announced a restructuring deal.

In 2018, former Anbang Insurance boss Wu Xiaohui, who bought out New York’s Waldorf Astoria hotel in a record $1.95 billion deal in 2014, was sentenced to 18 years in prison after a Chinese court found him guilty of fraud and embezzlement.

Both Wu and Chen later saw their personal assets seized and liquidated. A $112 million mansion said to belong to Xu Jiayin was put on the market by receivers last year, however, no sale has been announced so far.