Evergrande NEV Director Arrested for ‘Illegal Crimes’ After Share Deal Collapse

The spectre of “illegal crimes” haunts China Evergrande once again, with authorities reportedly detaining an executive director of the troubled developer’s electric car unit.

Evergrande New Energy Vehicle “has learned that its executive director Mr Liu Yongzhuo has been detained in accordance with the law on suspicion of illegal crimes”, chairman Shawn Siu announced Monday in a filing with the Hong Kong stock exchange.

The news, which echoes last year’s detainments of other Evergrande figures including group chairman Xu Jiayin, follows the collapse of a share sale that would have injected $500 million into the struggling car maker.

After a four-hour trading halt early Monday, Evergrande NEV shares resumed activity and plunged nearly 24 percent before paring losses to close 6 percent lower at HK$0.39 ($0.05).

Stuck in Low Gear

Evergrande NEV’s 2022 annual report lists Liu Yongzhuo as the president and vice chairman of the company, where deliveries of the only available model have barely cracked 1,000.

Liu joined China Evergrande in late 2003 and has also served as vice president of the developer, as well as chairman of Evergrande Football Club, Evergrande Spring Water Group and Evergrande High-tech Group.

Last August, China Evergrande announced plans to sell a 27.5 percent stake in Evergrande NEV to NASDAQ-listed NWTN (pronounced “Newton”) for $500 million. Under the terms of the agreement, the UAE-based car maker would have gained the right to nominate a majority of Evergrande NEV’s board of directors.

The transaction was expected to close in the fourth quarter, contingent on the progress of the parent company’s ongoing debt restructuring and the confirmation of a debt repayment plan by “a certain creditor” of Evergrande NEV. But the parties to the share subscription and loan conversion deals failed to reach an agreement to extend the long stop dates, which expired on 31 December.

Risky Business

Evergrande boss Xu, also known by his Cantonese name Hui Ka Yan, was detained last year “on suspicion of illegal crimes”, according to an update from the group in late September. That revelation came less than a week after the Shenzhen-based company’s ex-CEO Xia Haijun and former finance chief Pan Darong were reported by mainland media to have been detained in an investigation of potential financial crimes by Evergrande.

Both Xia and Pan were forced to resign from Evergrande in July 2022, with the company indicating that they had been involved in a scheme to illicitly funnel money to the developer as it struggled to pay its bills.

Evergrande last November introduced a debt restructuring plan for offshore bondholders with an offer to swap their debts into a 30 percent equity stake in each of Evergrande NEV and Evergrande Property Services, Reuters reported at the time.

The proposal ran aground when a group of offshore creditors demanded controlling equity stakes in Evergrande and the two Hong Kong-listed units, according to a Bloomberg account, as 2023 drew to a close without completion of a restructuring deal.

Hengda Real Estate, Evergrande’s primary mainland unit, reported more than RMB 316 billion ($44.3 billion) in unpaid due debts and RMB 205.5 billion in overdue commercial bills as of the end of November.