HONG KONG (Reuters) -Trading in shares of China Evergrande Group was suspended on Thursday after a report that its chairman had been placed under police watch, as concerns mounted about the cash-strapped developer's future amid growing liquidation risk.
With more than $300 billion in liabilities - roughly the size of Finland's gross domestic product - Evergrande has become the poster child of a debt crisis in China's property sector, which contributes to roughly a quarter of the economy.
Trading in the shares of Evergrande and two of its units were suspended on Thursday, a day after Bloomberg reported that its Chairman Hui Ka Yan was taken away by police this month and was being monitored at a designated location.
The report said it was not clear why Hui was under surveillance and Reuters could not immediately verify the news. Evergrande and the police authorities have not responded to Reuters requests for comment.
Evergrande has been working to get creditors' approval for restructuring its offshore debt. The process got complicated this week after Evergrande said it was unable to issue new debt due to an investigation into its main China unit.
The offshore debt restructuring plan now looks set to falter and the risks of the company being liquidated are rising, some analysts said.
Reuters reported on Tuesday that a major Evergrande offshore creditor group was planning to join a liquidation court petition filed against the developer if it does not submit a new debt revamp plan by the end of October.
"It is unclear why Hui is under police surveillance, but it may signal certain negotiations demanded from the government. The latest development has disrupted the hope of restructuring," said Gary Ng, Asia Pacific senior economist at Natixis.
"No developer is too big to fail in China, and therefore it is hard to imagine a full bail-out. Still, when it comes to stability, it is possible to see more government influence in different ways," Ng said.
The company shares ended down 19% on Wednesday in the Hong Kong market, taking their losses to 81% since the resumption of trading in late August after a 17-month suspension.
Evergrande's latest woes come against the backdrop of Beijing rolling out a raft of measures in the last few weeks, including cutting of existing mortgage rates, to revive the battered property sector.
The recent regulatory easing may stabilize the housing market in the world's second-largest economy to some extent, Saxo Greater China Market Strategist Redmond Wong wrote in a research note.
"Still, the overhang of housing inventories in lower-tier cities facing population decline will persist for several years," he said.
"This will lead to more headlines about defaults, restructuring, and liquidation of insolvent developers, causing losses for shareholders, bondholders, banks, and investors in trust and wealth management products tied to property projects."
(Reporting by Donny Kwok in Hong Kong, Scott Murdoch in Sydney, and Ziyi Tang in Beijing; Writing by Anne Marie Roantree and Sumeet Chatterjee; Editing by Kim Coghill, Shri Navaratnam and Lincoln Feast.)
