Evergrande uses personal financial investment to close funding gaps

Evergrande, a Chinese real estate developer in crisis, used billions of dollars raised by selling wealth management products to retail investors to fill the funding shortfall, according to a senior executive at the company in Shenzhen. It also repaid to other wealth management investors.

Evergrande’s financial advisers have sold a wide range of products, including apartment homeowners, 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 as it is too risky for the average individual investor. Executives were talking to an angry investor who tried to get the money back to the company’s Shenzhen headquarters during a meeting witnessed by the Financial Times.

Safe and stable returns “backed by Evergrande” were central to marketing. Company executives said 80,000 investors own RMB 40 billion ($ 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 is the most indebted in the world. Last year it was worth HK $ 320 billion (US $ 41 billion), but its market value plummeted to $ 3.7 billion. Approaching the default The offshore bond and creditors scramble for repayment.

The company’s problems stimulated the global market on Monday, Hong Kong’s Hang Seng Index closed at its lowest level since October last year, and Wall Street recorded the worst daily loss in four months. Evergrande’s share price fell 7% on Tuesday, with an annual loss of about 85%.

However, stock prices were generally stable on Tuesday, with the Hang Seng Index up 0.5% and the STOXX 600 Index across Europe up 1% in the afternoon trading. Markets in mainland China remained closed due to national holidays.

Thousands of retail investors, along with banks, suppliers and foreign investors, borrow money from Evergrande and are afraid they won’t be repaid 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 Of the company’s investment products at the support show.

“My parents spend most of their savings on RMB 200,000, not much by Evergrande’s standards. [wealth management products]”The daughter of an investor who asked her to be identified by her name Xu said.

She said Evergrande’s financial adviser, located in the tower of an apartment built by a company in central China, 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 anti-cancer drugs. [for Xu’s mother], There is nothing else. “

Last week, Xu was one of the hundreds of people who traveled to the Evergrande Shenzhen headquarters in hopes of recovering their investment.

RMB 40 billion for wealth management products is small compared to the total developer debt of RMB 2 trillion, Protest by individual investors With development across China, remediating concerns has become a top priority for the group at Evergrande’s offices, according to one of the company’s executives.

Last week, hundreds of homebuyers, retail investors and Evergrande contractors gathered at the Shenzhen headquarters of the real estate group for repayment © Noel Celis / AFP / Getty

An investor named Rosy Chen and an employee of her husband Evergrande have invested RMB 100,000 this year in a product that promotes 11.5% annual revenue at the prompt of one of their bosses. According to the investment agreement, the cash was used to “supplement” the working capital of a company called Hubei Gandant Material.

The contract indicated that Evergrande’s subsidiary undertook the product, but another Evergrande subsidiary guaranteed that Gangdun in Hubei would repay Chen in the event of default.

“We were waiting at first, but when we saw, we were one of the only family members in the whole. [Evergrande] We won’t buy the division, so we decided to invest too, “Chen said. “We believed that Evergrande would not fool our employees.”

Contracts and bank statement statements that FT saw on a handful of wealth management products showed that investor money was flowing to small businesses in Hubei Province and the coastal city of Qingdao. According to business records, many, such as Hubei Gran 墩, have recently changed ownership and executives. No company responded to repeated phone calls or messages asking for comment.

In an interview with local media, one Evergrande financial adviser said the product was a form of “supply chain finance.”

Money from retail investors may have been paid to their suppliers in the last few years, but Shenzhen Evergrande executives who accept retail investors said it is no longer the case.

When asked about Hubei Gangdun, one of Evergrande’s wealth management executives, it was just a paper company. “The revenue from WMP has been used to fill the various funding gaps facing the parent company,” said an executive. “You don’t have to dig into where the money actually went.

“Some WMP revenue was used to repay previous products, but sales plummeted, making it difficult to continue our business model,” he admitted.

“Many people … If investors aren’t rewarded, they may be arrested for financial fraud,” he said. “Our products weren’t for everyone. But our grassroots salespeople don’t take this into account when marketing and target everyone to reach their sales goals. I made it. “

Developers have six senior executives this week Face “severe punishment” For ensuring early redemption of investment products after individual investors were told that they would not be repaid on time.

It is unclear whether Evergrande has included RMB 40 billion in WMP on its balance sheet debt.

“We 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,” said Moody’s Investors Service Senior Credit. Analyst Cedric Rye said.

Nigel Stevenson of GMT Research agreed that it is unclear how Evergrande described WMP. “If the finances are uncovered, more horror can be discovered,” he said.

Evergrande liquidates individual investors with deferred repayments, future apartment or parking swaps, or outstanding debt owed to the company for previous apartment purchases, instead of immediate cash repayments. Proposed.

An investor named Hou in central Anhui, who invested RMB 100,000, said he was watching the situation closely. He said Evergrande wondered if investors could “really offer these future apartments” offered in lieu of repayment and wouldn’t invest any more money to buy it.

Still, he hasn’t given up hope. “Evergrande will probably survive!” He said.

Evergrande did not respond to the request for comment.

Evergrande uses personal financial investment to close funding gaps

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