Shares of China Evergrande Group, the world’s most indebted property developer, plummeted by 25% on Monday following the detention of some staff members at its wealth management unit by police. This development suggests a new investigation that could further worsen the company’s already precarious situation.
China Evergrande has been at the center of a crisis in China’s real estate sector, with a series of defaults since late 2021 that have sparked fears of contagion and rattled global markets. The company’s stock was suspended for 17 months until August 28.
During protests by disgruntled investors at Evergrande’s Shenzhen headquarters in 2021, Du Liang was identified as the general manager and legal representative of Evergrande’s wealth management division. In a social media statement on Saturday night, police in Shenzhen revealed that “recently, public security organs took criminal compulsory measures against Du and other suspected criminals at Evergrande Financial Wealth Management Co.”
It is important to note that Reuters was unable to confirm if Du was among those detained, and the police statement did not provide specific details regarding the number of people detained, the charges filed, or the date of the detentions.
Evergrande has not yet responded to requests for comment regarding the police action.
The stock experienced a sharp decline, falling as much as 25% to HK$0.465 in early morning trade, reaching its lowest point in two weeks. However, it later recovered slightly, down 11% by 0200 GMT, while the broader Hang Seng Index only fell by 0.9%.
In August, Evergrande reported a net loss of 33 billion yuan ($4.5 billion) for the first half of the year, compared to a loss of 66.4 billion yuan in the same period the previous year.
Earlier this month, the company announced a delay in making a decision on offshore debt restructuring until next month, allowing debt holders more time to consider its restructuring plan.
In conclusion, the detention of staff members at Evergrande’s wealth management unit has further exacerbated the company’s already precarious situation. The investigation and the company’s mounting debt woes continue to pose significant challenges for China’s real estate sector and have triggered fears of a broader contagion effect.