Proactive Investors - Shares in China Evergrande, the massively indebted property developer, fell back to all-time lows on reports that its chairman and founder has been arrested.
Hui Ka Yan, who started the company in 1996, was taken away by police earlier this month and is being monitored at a designated location, Bloomberg reported.
Last week, the company cancelled creditor meetings scheduled for Monday and Tuesday, citing weaker-than-expected sales and the need to reassess its restructuring terms.
Two days later, workers at Evergrande’s financial subsidiary were arrested.
Earlier this week the company, which has more than US$300 billion of debt, said it is unable to issue new debt because of an investigation into one of its subsidiaries.
The embattled property developer cannot “meet the qualifications for the issuance of new notes” as its principal subsidiary, Hengda Real Estate Group, is being investigated, it said in a Hong Kong stock exchange filing on Sunday.
Evergrande's collapse is at the core of the liquidity crisis affecting China's real estate industry, which in recent years has accounted for around a quarter of national economic output.
Elsewhere in the sector, Hengda Real Estate said last month that it was being probed by the China Securities Regulatory Commission for a suspected breach of information disclosure rules.
Analysts have said that hopes are dying that complex financial engineering could continue propping up the companies and prevent problems from overflowing to other sectors.
In London, mining companies such as Rio Tinto (LON:RIO), Anglo American (LON:AAL), Glencore (LON:GLEN) and Antofagasta (LON:ANTO) are seen as affected, as they supply a significant part of the crucial materials for construction.
Elsewhere, financial groups Prudential (LON:PRU), HSBC (LON:HSBA) and Standard Chartered (LON:STAN) are all highly exposed to China and Hong Kong.