Shares of China Evergrande suspended, China may learn from US, India says Uday Kotak

China Evergrande Group has opted to cease trading in Hong Kong, including its electric vehicle and property services divisions, following a report by Bloomberg indicating that the company’s founder, Hui Ka Yan, has been arrested by authorities. The Hong Kong Stock Exchange received a notice on Thursday about the trading halt, but no specific reasons were provided. As per Bloomberg’s report, Hui was taken into custody earlier this month and is currently under “residential surveillance.” This form of police monitoring does not constitute formal custody or arrest, and it’s not clear whether Hui will face criminal charges. In a tweet dated September 21, 2021, Uday Kotak expressed his views on Evergrande, stating, “Evergrande seems like China’s Lehman moment. Reminds us of IL&FS. Indian Government acted swiftly. Provided calm to financial markets. The government-appointed board estimates 61% recovery at IL&FS. Evergrande bonds in China trading 25 cents to a $.”

Uday Kotak

With liabilities surpassing $300 billion, an amount roughly comparable to the gross domestic product of Finland, Evergrande stands out as a symbol of a debt crisis within China’s property sector. This sector is a substantial contributor, accounting for approximately a quarter of the country’s economy. The considerable magnitude of Evergrande’s liabilities highlights the complexities and potential repercussions it introduces to the broader economic landscape.

This development comes after the recent detention of some employees in Evergrande’s wealth management section by authorities earlier this month. Additionally, two former executives were reportedly taken into custody, according to Caixin. Bloomberg suggests that these events signal a new phase in the case, involving the criminal justice system, for the world’s most indebted developer. The suspension of trading and the reported arrest of the founder raises concerns about Evergrande’s future, especially in light of recent setbacks to its restructuring plan. These challenges have led to market instability and increased speculation about the possibility of a liquidation. The unfolding developments add further uncertainty to Evergrande’s outlook and its potential repercussions for the broader financial landscape.

Uday Kotak, Founder and director of Kotak Mahindra Bank, has expressed concerns about the potential collapse of Evergrande in China. In a statement on a platform referred to as X, which could be similar to Twitter, Kotak suggested that Evergrande might face an implosion. He observed that it has been two years since the initial reports of problems, and the response from policymakers appears to have been delayed. Kotak drew parallels between the situation in China and past financial crises in other nations. Specifically, he mentioned that China could draw lessons from the experiences in the United States after the Lehman Brothers collapse and in India after the IL&FS crisis. These references indicate the importance of swift and effective action by policymakers in addressing and mitigating the consequences of a financial crisis.