Market needs clarity on Evergrande

Is China Evergrande founder Hui Ka-yan under house arrest? Although it is not officially confirmed yet, reports of him being held under "residential surveillance" may be credible.

Investors are expecting the Hong Kong-list Chinese real estate developer to issue an announcement in accordance with Hong Kong stock exchange requirements since Hui's current situation is surely market sensitive.

A clarification from the company would be needed for the local exchange to maintain its credibility to investors. Or the Securities and Futures Commission should consider intervening if the market hears no further from Evergrande.

Will the company make a filing to the exchange? Let's wait and see.

News of Hui being led away and held under "residential surveillance" - or house arrest in the general language - was first carried by Bloomberg and reportedly verified by mainland media citing unidentified company sources.

Despite an absence of official confirmation, the reports were already strong enough to deal another hard blow on Evergrande's already lifeless stocks, sending it to plummet a further 19 percent yesterday.

The stock exchange and SFC are duty bound to act quickly to protect investors' interest by making sure the company is making sufficient disclosure.

China Evergrande, one of the country's largest real estate developers, has been confronted with a constant stream of negative news since the central government began tightening developers' access to credit in 2020. Evergrande's crisis also snowballed as it defaulted on debts due.

The negative news included a Caixin report that Evergrande's former chief executive officer Xia Haijun had been brought under control by the authorities as well as other reports that several of its Shenzhen employees were recently held by authorities.

According to the mainland's common practice, Evergrande or Hui would have been expected to be dealt with strongly by the Chinese authorities fairly soon together with an official probe. But the saga has been allowed to drag on longer than thought.

Could they have been cleared by the investigation?

Unlikely, in light of the reports about Hui's "residential surveillance."

Under mainland laws, "residential surveillance" does not mean Hui has been arrested or charged with crime officially.

It is believed that the central government has been expecting Hui, once China's richest person, to return his personal wealth to make good the appalling situation, which may be inconceivable in the free economy of the west but is not uncommon in China, which is run by a different system.

Hui was reported last month to have divorced his wife of many years, Ding Yumei, after a company filing to the stock exchange defined Ding as a third party independent of the company and its affiliates rather than Hui's spouse that she had always been referred to as in previous filings.

The rumored "divorce" sparked speculation that Hui may be trying to protect part of his wealth.

It is unacceptable that so little information is being provided to the exchange and investors.

As the Evergrande saga continues to unfold, it is doomed to weigh on the stocks of mainland developers.