Twitter – Evergrande’s key man risk strikes at worst time
HONG KONG, Aug 17 (Reuters Breakingviews) – A leadership shakeup at China’s troubled Evergrande (3333.HK) empire weakens its already-shaky foundations. Founder Hui Ka Yan has unexpectedly stepped down as chairman of the Hengda Real Estate unit, the crown jewel which contributes to most of the listed parent’s revenue. The company claims the change was “normal” and the result of Hengda’s failure to secure a Shenzhen listing.
Investors are unconvinced it’s business as usual at the group, which is on the hook for over $46 billion in short term loans. Evergrande Property Services (6666.HK), where Hui’s sucessor is also general manager, tanked 9%, while other units declined by lesser degrees. Yields on one yuan-denominated Evergrande bond blasted up to 190%.
Chinese companies are often subject to “key-man risk” because authority is traditionally concentrated in the hands of the founder, who owns all the business relationships. If Hui is bailing out himself, that could complicate a much-needed restructuring. On the other hand, he may have become so politically toxic that his departure could actually smooth the way for government intervention read more . Either way, it’s a nasty surprise for already jittery investors. (By Pete Sweeney)
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Editing by Robyn Mak and Sharon Lam
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