Evergrande shares fell 22% on Monday after the company said it was unable to issue new debt as the result 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.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said Evergrande had "run into a roadblock in its attempts to restructure its debt, with expectations of new restructured debt being issued now scuppered by an ongoing official investigation into its major subsidiary, Hengda".
"There had been hopes that intricate financial engineering will stop the property sector's woes from overflowing to other sectors, but doubts have crept back in about the long-term effectiveness of this tinkering," she added.
Hengda Real Estate said in August that it was being probed by the China Securities Regulatory Commission for a suspected breach of information disclosure rules.
The announcement comes two days after Evergrande cancelled creditor meetings scheduled for Monday and Tuesday, citing weaker-than-expected sales and the need to reassess its restructuring terms.
Last week, employees at Evergrande’s financial subsidiary, Evergrande Wealth Management, were arrested, police in the southern city of Shenzhen said in a statement.
The property firm is estimated to have liabilities of $340 billion.