SHANGHAI – Lured by the promise of nearly 12 percent returns, gifts like Dyson air purifiers and Gucci bags, and the guarantee from China’s best-selling developer, tens of thousands of investors have bought wealth management products through the China Evergrande Group.
Now, many fear that they may never get their investments back after the insolvent property developer recently stopped repaying some investors and rang alarm bells around the world about its massive debt.
Some have protested in Evergrande’s offices, refusing to accept the company’s plan to pay with discounted apartments, offices, shops and parking, implementation started on Saturday.
“I bought from the property managers after seeing the ad in the elevator, trusting Evergrande as a Fortune Global 500 company,” said the owner of an Evergrande property in home province of Guangdong, surnamed Du.
“It is immoral for Evergrande not to pay back my hard-earned money,” said the investor, who invested 650,000 yuan (S $ 135,900) in Evergrande Wealth Management (WMP) products at an interest rate of more than seven percent last year.
More than 80,000 people – including employees, their families and friends, and Evergrande real estate owners – bought WMP, which has raised more than 100 billion yuan in the past five years, said a sales director for Evergrande Wealth, which was founded as a peer-to-peer in 2016 became – Peer online lending platform originally used to fund its real estate projects.
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About 40 billion yuan of the investment is outstanding, the person said, declining to be named because she was not allowed to speak to the media.
China Evergrande did not respond to a request for comment on Tuesday, a public holiday in China.
With more than $ 300 billion in debt, Evergrande’s liquidity crisis rocked global markets this week. The company has vowed to repay WMP investors.
Christmas promotion
China’s years of efforts to deleverage its economy have led companies to turn to off-balance sheet investments in search of funding.
After Beijing further capped developer indebtedness last year, the most heavily indebted players like Evergrande felt even more pressured to find new sources of capital to ease the growing liquidity stress and turned to employees, suppliers and customers Get cash through commercial paper, trust and fortune management products.
Evergrande Wealth began selling WMP to individuals in 2019 after regulatory action led to a collapse in the peer-to-peer lending sector, said the sales manager and another Evergrande employee who bought the WMP.
To attract investors, the sales director offered gifts such as Dyson air purifiers and Gucci handbags to anyone who bought more than three million yuan of WMP during a Christmas promotion last year.
A sales manager’s product brochure reviewed by Reuters showed that the WMP are categorized as fixed income products suitable for “conservative investors looking for stable returns.”
‘De facto Evergrande product’
On two products sold last November, a construction company in Qingdao wanted to raise up to 10 million yuan with an annualized return of seven percent in one and 20 million yuan with returns between 7.8 percent and 9.5 percent in one, depending on the investment others.
The minimum investments were 100,000 yuan and 300,000 yuan, respectively.
Evergrande also typically offers certain investors an additional return of up to 1.8 percent, which can boost the return to over 11 percent on a 12-month investment, the sales director said.
The proceeds were to be used for the working capital of Qingdao Lvye International Construction Co, the documents showed. On a public holiday, the office could not be reached for comment.
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The repayment will be made either from the issuer’s earnings or from Evergrande Internet Information Service (Shenzhen) Co, a subsidiary that Evergrande Wealth operates and promises to cover the principal and interest in the event an issuer fails to make the repayment, the prospectus states .
The sales manager said the Qingdao company is working on Evergrande projects and will use Evergrande’s payment to repay investors when it is closed.
“It’s a de facto product from Evergrande,” said the person.
Other heavily indebted Chinese conglomerates, including HNA Group, which filed for bankruptcy earlier this year, and China Baoneng have used similar products.
In a petition to various government agencies, a group of WMP investors in Guangdong accused Evergrande of improperly using funds that should have gone to the issuers to fund their own projects and of not disclosing the risks adequately.
They also complained that they were misled by the stature of their Chairman Hui Ka-yan, finding that he was prominently featured during the 2019 celebrations marking the 70th anniversary of the founding of the People’s Republic of China.
“Investors trusted Evergrande and bought Evergrande’s WMP out of our love and belief in the party and government,” they wrote.
