Following Evergrande's deepening debt crisis, the fate of Hui Ka Yan, also known as Xu Jiayin, often referred to as the "Chinese real estate magnate," has taken a dramatic turn.
On the evening of September 28, China Evergrande announced on the Hong Kong Stock Exchange that the company had been informed by relevant authorities that its executive director and chairman, Mr. Hui Ka Yan, had been taken into custody on suspicion of illegal activities.
Prior to this, several senior executives of Evergrande had already been detained for investigation. On the evening of September 16, Du Liang, the legal representative and executive director of Evergrande's financial platform, Evergrande Wealth, was taken into criminal custody.
Other key executives recently investigated include former Chief Financial Officer Pan Darong and former Evergrande Real Estate President and Evergrande Property Chairman Zeng Lita. Pan Darong was primarily responsible for finance and funding at the Evergrande Group. In 2022, former Evergrande Real Estate President Ke Peng was also investigated for irregularities in a Shenzhen redevelopment project.
Evergrande's listed company stocks were temporarily suspended in the morning, drawing significant attention to the impending news.
The once-proclaimed "Chinese real estate magnate" Hui Ka Yan is now paying a heavy price for his aggressive and risky ventures.
The 65-year-old Hui Ka Yan was last seen in public on July 4 of this year, presiding over a management meeting of the Evergrande Football Club.
At that time, the listed companies of the Evergrande Group had just released their performance reports. In July, with the supplementary release of the 2021 and 2022 performance reports of China Evergrande (03333.HK) and Evergrande Auto (00708. HK), Hui's last veil was torn off, revealing cumulative net losses of 812 billion yuan and 84 billion yuan over the two years, respectively.
The nearly 900 billion yuan loss is staggering, with China Evergrande's 812 billion yuan loss setting a record for the highest loss ever by a Chinese company. Additionally, China Evergrande's total liabilities have reached 2.44 trillion yuan, far exceeding HNA Group's liabilities of about 1 trillion yuan.
Facing such a massive financial hole, Evergrande is severely insolvent, and Hui Ka Yan's chances of self-rescue seem slim.
The 21st Century Economic Report pointed out that Evergrande Group, its listed companies, and its executive team face strong doubts about their integrity, management chaos, loss of risk control, financial fraud, and potential regulatory inquiries and investigations into alleged illegal activities.
A Glorious Past
Hui Ka Yan, known as the "Chinese real estate magnate," is a man of strong character, known for his aggressive, adventurous, and arrogant approach.
From an ordinary worker to becoming the richest man in mainland China, Hui Ka Yan achieved this feat in just 17 years.
In 1992, after working for 10 years at the Wuyang Steel Plant in Henan, 34-year-old Hui Ka Yan left his secure job with a savings of 20,000 yuan and ventured to Shenzhen to start a business, becoming a small salesman for a trading company.
With a business deal split from a friend's trade project, Hui quickly earned 100,000 yuan for the company and was promoted to office director. A year later, he proposed to his boss to collaborate with his former employer, Wugang, to establish a new trading company.
At that time, the real estate and construction industry in the Pearl River Delta was booming, and the prospects for steel trade were broad. Hui thrived in this new trading company, and business flourished.
In 1994, Hui proposed to his boss to venture into the booming Guangzhou real estate market. With a transfer of 15 million yuan from the headquarters, he took over his first real estate project, Guangzhou Zhudao Garden.
During the development of this project, Hui adopted a "rapid development to revitalize cash" blitzkrieg tactic, which later became Evergrande's tool for rapid expansion.
In just two to three years, Guangzhou Zhudao Garden brought in 200 million yuan for the company. However, Hui's monthly salary was only 3,000 yuan. After unsuccessful negotiations for a raise, Hui decided to go it alone.
In 1996, Hui founded Evergrande. At that time, the Asian financial crisis hit, and the domestic real estate industry was in a slump. But with a strategy of "small size, low price, low cost," the first property developed by Evergrande, Jinbi Garden, achieved sales and was sold out within the year.
With the introduction of housing reform policies in 1998, the real estate industry entered a golden era. Hui seized the opportunity to maximize Evergrande's rapid development model and adhered to a "high debt, high growth" strategy for the next 20 years, eventually becoming the industry leader in 2016.
Evergrande's rapid expansion also led to a sharp increase in Hui's personal wealth. In 2009, Evergrande was listed on the Hong Kong Stock Exchange, closing with a market value of 70.5 billion Hong Kong dollars on its first day. Hui, with a net worth of 48 billion Hong Kong dollars, became the richest man in mainland China for the first time.
In 2017, Hui became China's richest man again with a wealth of 290 billion yuan, the highest total wealth in history. However, this would be his last time topping the wealth list.
Strategic consultant Wang Zhigang once pointed out that Hui's strength lies in his understanding of human nature. His products are always extremely cheap, with guaranteed special prices at launches, and these special prices always appreciate. There's always a crowd looking for a bargain.
Over 30 years in the business world, Hui faced numerous crises. Several times it seemed he would lose, but he always emerged victorious, such as relying on the support of wealthy individuals during the 2008 financial crisis. These fortunate experiences, to some extent, made him even more arrogant in later years.
Diversification Missteps
For a successful entrepreneur, the focus of strategy is often not on seizing opportunities but on resisting temptations. What not to do is often more important than what to do. Otherwise, it's easy to fall into the trap of diversification, which has become one of the main reasons for Evergrande's current downfall.
Hui is an ambitious businessman. In addition to the well-known football venture, he expanded Evergrande's diversified business landscape to include fast-moving consumer goods, finance, health and wellness, cultural tourism, and new energy vehicles, hoping to multiply his wealth in multiple fields.
Hui was aggressive, making large-scale investments as soon as he entered a new industry, quickly scaling up and capturing a large market share. This was the case with Evergrande Football, Evergrande Spring Water, and Evergrande Auto.
However, each industry has its barriers to entry. Instead of seeking a second growth curve in the real estate chain and consolidating the advantages accumulated in the real estate industry, Hui always seemed to think the grass was greener elsewhere. As a result, he quickly declined during the downturn in the real estate industry.
In 2018, economist Ren Zeping, who had not been with Evergrande for long, repeatedly advised Hui to reduce debt and oppose diversification. However, at a company meeting, Hui criticized him for lacking vision and not recognizing the company's major strategy.
At the annual performance release in March 2021, Hui showcased his "muscles" to the outside world for the last time, stating that Evergrande already had eight diversified industries. In addition to the main real estate business, there were Evergrande Auto, Evergrande Property, Hengteng Network, Fangchebao, Evergrande Children's World, the big health industry, and Evergrande Spring Water.
The day before, Fangchebao had signed a listing gambling agreement, drawing a battle of 16.35 billion Hong Kong dollars. Evergrande Spring Water, which was sold for 2.7 billion yuan in 2016, was also bought back by Hui, who planned to package it for listing.
In June of the same year, after the commercial bill overdue event fermented for a while, at a communication meeting with suppliers, Hui even claimed that all diversified businesses would be split and listed in the future.
The reality was harsh. As Evergrande plunged into a debt crisis, Evergrande Spring Water was sold again by Hui, and Fangchebao failed to go public as scheduled.
Among the diversified businesses, Hui was most committed to new energy vehicles, and after the real estate business stalled, he bet all his and Evergrande's future on the new energy vehicle industry.
Since entering the new energy vehicle industry in 2018, Evergrande's investment has exceeded 47.4 billion yuan. However, high investments did not bring returns. From 2020 to 2022, Evergrande Auto accumulated a loss of 916.73 billion yuan. Currently, the first and only model has just over 1,000 deliveries, failing to make a splash in the car market.
Although it has successfully resumed trading, Evergrande Auto is severely insolvent and can hardly expect any more "blood transfusions" from Hui. It will be challenging to operate normally and establish a foothold in the market.
The Final Collapse
Evergrande Group, which relied on a high-debt model to sprint all the way, blindly expanded in scale and diversification in recent years, leading it step by step into the abyss.
The first sign of the Evergrande crisis appeared in a plea for help. In September 2020, with less than four months left for Evergrande's A-share gambling period and 130 billion shares of convertible bonds looming, a plea for help titled "Evergrande Group Limited's Report on the Situation of Seeking Support for Major Asset Restructuring" was leaked.
The letter mentioned that if Evergrande failed to successfully backdoor list on the A-share market by January 31, 2021, it would lead to a break in the company's capital chain. At the time, Evergrande clarified that it was a rumor, but now the outside world must have discerned the truth.
After this dramatic episode, Evergrande officially terminated its plan to backdoor list on the A-share market through Shenzhen Shenfang in November 2020. Moreover, over 90% of the war investors, with a principal of over 120 billion yuan, agreed to continue holding shares in Evergrande Real Estate. In other words, even if the listing gambling agreement was not reached, the war investors did not want Evergrande to repay the money.
After the successful gamble, the outside world thought that Hui had turned danger into safety again. However, with the advancement of the real estate industry's financing "three red lines," financing for real estate companies continued to tighten. By June 2021, the exposed commercial bill payment issue revealed Evergrande's debt risk to the public.
At the time, Hui still confidently assured suppliers, but banks with keen senses took self-preservation measures first. On July 19, 2021, China Guangfa Bank requested the freezing of Evergrande's assets, valued at 132 million yuan, causing Evergrande's stocks and bonds to plummet that day, marking the beginning of Evergrande's debt crisis.
A series of negative news accelerated the deterioration of Evergrande's liquidity crisis. In its semi-annual report released in August, Evergrande admitted that it had delayed payments to suppliers and contractors, and some related projects had stopped. Hui also canceled the performance release meeting that had always been held.
Since the second half of 2021, Evergrande has successively experienced project stoppages in various places, delayed payments of wealth management products, and defaults on US dollar bonds, all indicating that Evergrande's liquidity problems are becoming more severe.
This real estate company, which originally aimed to achieve a sales scale of one trillion yuan in 2022, quickly plummeted and applied for a working group dispatched by the Guangdong provincial government in December 2021.
After Evergrande fell into the quagmire, Hui had to sell personal assets to recoup funds. According to public information, the income that Hui's family has received from Evergrande in these years is only over 50 billion yuan in shares and bond income, and the disclosed sold assets are obviously not all of Hui's wealth.
According to information provided by Evergrande, from July 1, 2021, to November 16, 2021, Hui had contributed 7 billion yuan in cash to support Evergrande through the crisis. This came from his personal stock pledges, the sale of a villa in Hong Kong, the sale of a private plane, and homes in Shenzhen Bay No. 1 and Guangzhou Zhujiang New Town were also put on the shelf.
Starting last year, news about Hui's personal blood transfusion to Evergrande has been almost non-existent. Perhaps he realized early on that Evergrande Group had become a bottomless pit.
On July 17 of this year, China Evergrande supplemented all previously unissued performance reports, also tearing off Hui's last veil of shame.
According to China Evergrande's 2022 performance report, due to the repossession of idle land and asset impairment, its net losses in 2021 and 2022 were 686.2 billion yuan and 125.814 billion yuan, respectively. Among them, the net losses attributable to the parent company were 476.035 billion yuan and 105.914 billion yuan, respectively.
In the glorious past decade, from 2013 to 2020, China Evergrande's cumulative net profit was only about 235.2 billion yuan.
With huge losses and comprehensive debt defaults, China Evergrande is deeply insolvent.
As of the end of 2022, China Evergrande's total liabilities were about 2.44 trillion yuan. Excluding contract liabilities of 721.02 billion yuan, it was 1.72 trillion yuan. Among them, loans were 612.39 billion yuan, trade payables and other payables were about 1,002.26 billion yuan (including 596.16 billion yuan payable for engineering materials), and other liabilities were 101.74 billion yuan.
Looking at the asset situation, as of the end of 2022, China Evergrande's total assets were about 1.84 trillion yuan, and net assets were about -599.1 billion yuan.
In terms of cash, China Evergrande's cash and cash equivalents and restricted cash totaled only about 14.305 billion yuan.
In other words, in just two years, the empire that Hui had built over the years was almost gone. At the same time, a large number of homebuyers, suppliers, and creditors need an explanation.
After Hui and several other senior executives were taken away for investigation, Evergrande's overseas debt restructuring, which had already encountered obstacles, added variables. Its overseas debt totaled more than 19 billion US dollars. Previously, due to the China Securities Regulatory Commission's investigation of Evergrande Real Estate, Evergrande no longer had the qualifications to issue new bills overseas. Subsequently, Evergrande announced the cancellation of the overseas bondholders' meeting.
Evergrande's massive debt needs to be addressed, and the next delivery of buildings is also a major task that needs to be completed.
