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  • Writer's pictureMichael Amelio

China Evergrande's stock plummets by 25% following the detention of wealth management personnel

China Evergrande Group, a deeply troubled property developer and the world's most indebted in its sector, saw its shares plummet by 25% on a fateful Monday. This sharp decline came in response to the detention of certain individuals within its wealth management unit by the Chinese authorities. This development hints at a potential new investigation that could further compound the challenges already faced by the beleaguered property giant.

Evergrande has been at the epicenter of a crisis within China's real estate industry, marked by a series of defaults that began in late 2021. These defaults have not only sent shockwaves through global financial markets but have also raised concerns about potential contagion effects in the broader economy.

The company's stock had been suspended from trading for an astonishing 17 months until it was reinstated on August 28th.

During a period of protest by disgruntled investors at Evergrande's headquarters in Shenzhen back in 2021, one individual named Du Liang was identified by staff as the general manager and legal representative of Evergrande's wealth management division. It's essential to note that this wealth management division is a crucial aspect of Evergrande's operations and financial structure.

However, the recent turn of events is alarming. The local public security authorities in Shenzhen disclosed in a statement on social media that they had taken "criminal compulsory measures" against Du and other individuals suspected of criminal activities at Evergrande Financial Wealth Management Co. Unfortunately, the statement did not specify the number of people detained, the precise charges they are facing, or the date when they were apprehended.

It's worth noting that Reuters has not been able to independently confirm whether Du Liang is among those detained, and as of now, Evergrande has remained silent in response to requests for comments regarding this police action.

The market reaction to this unsettling news was swift and harsh. Evergrande's stock experienced a sharp decline, dropping by as much as 25% in early morning trade to reach HK$0.465, its lowest level in two weeks. Although the stock did recover slightly by 0200 GMT, it still remained down by 11%, significantly underperforming the broader Hang Seng Index, which recorded a 0.9% decline during the same period.

This latest setback for Evergrande comes after the company reported a staggering net loss of 33 billion yuan ($4.5 billion) for the first half of the year. This marked a significant deterioration compared to the same period in the previous year when the company had reported a net loss of 66.4 billion yuan. These substantial losses reflect the immense financial stress that Evergrande has been grappling with as it struggles to manage its towering debt pile and cope with the broader challenges in China's real estate market.

Adding to Evergrande's woes, the company announced earlier this month that it had decided to postpone a critical decision regarding the restructuring of its offshore debt. Originally slated for September, the decision has now been pushed back to the following month. This extension was intended to provide more time for the holders of Evergrande's debt to consider and evaluate the company's restructuring plan.

In conclusion, the dramatic decline in Evergrande's shares following the detention of individuals within its wealth management unit underscores the profound challenges facing the company and the broader real estate sector in China. Evergrande's ongoing financial struggles, combined with regulatory scrutiny and investor concerns, continue to cast a dark cloud over the company's future. The delay in the decision regarding debt restructuring only adds to the uncertainty surrounding Evergrande's fate and its potential impact on the global financial landscape.

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