Evergrande, a Chinese real estate developer in crisis, has used billions of dollars raised by selling wealth management products to retail investors to fill the funding gap, according to a senior executive at the company in Shenzhen. He also reimbursed other wealth management investors.
Evergrande’s financial advisers have sold a wide range of products, including apartment owners, and managers have persuaded their subordinates to invest, said an executive in Evergrande’s wealth management division.
One executive suggested that the product should not be offered because it is too risky for the average individual investor. Executives were chatting with an angry investor who was trying to recover the money at the company’s headquarters in Shenzhen during a meeting attended by the Financial Times.
Safe and stable returns “backed by Evergrande” were at the heart of marketing. Company executives said 80,000 investors have 40 billion RMB ($ 6.2 billion) in excellent Evergrande wealth management products.
The Hong Kong-listed group is one of the largest real estate developers in China and the most indebted in the world. Last year, it was worth HK $ 320 billion (US $ 41 billion), but its market value has dropped to $ 3.7 billion. The Default Approach The offshore bond and creditors are scrambling for repayment.
The company’s problems boosted the global market on Monday, the Hong Kong Hang Seng Index closed at its lowest level since October last year and Wall Street posted the worst daily loss in four months. The Evergrande share price fell 7% on Tuesday, with an annual loss of around 85%.
However, stock prices were generally flat on Tuesday, with the Hang Seng index up 0.5% and the STOXX 600 index in Europe up 1% in the afternoon session. Mainland Chinese markets remained closed due to public holidays.
Thousands of retail investors, as well as banks, suppliers and foreign investors, are borrowing money from Evergrande and fear they will not be paid back if the real estate group collapses. Other Chinese developers such as Baoneng, Country Garden, Sunac, and Kaisa also sell wealth management products.
Evergrande was last week by Ding Yumei, wife of founder Hui Ka Yan. Buy $ 3 million worth of the company’s investment products at the Support Show.
“My parents spend most of their savings on 200,000 RMB, not much by Evergrande’s standards. [wealth management products]The daughter of an investor who asked her to be identified by name Xu said.
She said Evergrande’s financial adviser, located in the tower of an apartment built by a central China company, persuaded her mother to invest. “If they didn’t buy the developer’s apartment, they wouldn’t trust Evergrande’s wealth products,” she said. “They wanted to ease the financial pressure of buying expensive cancer drugs. [for Xu’s mother], There is nothing else. “
Last week, Xu was among hundreds of people who visited Evergrande’s headquarters in Shenzhen in the hope of recouping their investment.
40 billion RMB for wealth management products is little compared to the total developer debt of 2 trillion RMB.
An investor named Rosy Chen and an employee of her husband Evergrande invested 100,000 RMB this year in a product that promotes 11.5% annual income at the behest of one of their bosses. According to the investment agreement, the money was used to “supplement” the working capital of a company called Hubei Gandant Material.
The contract stated that Evergrande’s branch was dealing with the product, but another Evergrande branch ensured that Gangdun in Hubei would reimburse Chen in the event of default.
“At first we were waiting, but when we saw we were one of the only family members altogether. [Evergrande] We will not buy the division, so we have decided to invest as well, ”Chen said. “We thought Evergrande wouldn’t cheat on our employees.”
The contracts and bank statements FT saw on a handful of wealth management products showed investor money flowing to small businesses in Hubei Province and the coastal city of Qingdao. According to business records, many, like Hubei Gran 墩, have recently changed ownership and management. No company responded to repeated phone calls or messages asking for comment.
In an interview with local media, an Evergrande financial advisor said the proceeds were a form of “supply chain finance”.
Money from retail investors may have flowed to their suppliers in recent years, but Shenzhen Evergrande executives who accept retail investors have said that is no longer the case.
Asked about Hubei Gangdun, one of Evergrande’s wealth management executives, it was just a paper company. “WMP’s income has been used to fill the various funding gaps facing the parent company,” said an executive. “You don’t have to figure out where the money actually went.
“Some of WMP’s revenue was used to reimburse previous products, but sales fell, making it difficult to continue with our business model,” he admitted.
“A lot of people… If investors aren’t rewarded they can be arrested for financial fraud,” he said. “Our products weren’t for everyone. But our local salespeople ignore this when marketing and target everyone to meet their sales goals. I did it. “
The developers have six senior executives this week facing a “severe sentence” for securing the early redemption of investment products after individual investors were told they would not be redeemed on time.
It is not clear whether Evergrande included RMB 40 billion in WMP on its balance sheet debt.
“We would expect some of that to be included in total debt… but it’s difficult to verify because there was no detailed disclosure in the financial statements,” Moody’s Investors Service Senior Credit said. . Analyst Cedric Rye said.
Nigel Stevenson of GMT Research agreed that it is not clear how Evergrande described the WMP. “If finances are discovered, more horrors can be discovered,” he said.
Evergrande liquidates individual investors with deferred repayments, future apartment or parking lot swaps, or outstanding debts owed to the company for previous apartment purchases, instead of immediate cash repayments. Offers.
An investor named Hou in central Anhui, who invested 100,000 RMB, said he was monitoring the situation closely. He said Evergrande was wondering if investors could “really offer these future apartments” offered in lieu of the redemption and would no longer invest money to buy it.
Yet he did not give up hope. “Evergrande will probably survive! ” He said.
Evergrande did not respond to the request for comment.