Evergrande wooed retail investors with Gucci bags and Dyson devices

SHANGHAI, Sept.21 (Reuters) – Lured by the promise of yields of around 12%, freebies such as Dyson air purifiers and Gucci bags, and the guarantee of China’s top-selling developer, tens of thousands of investors bought wealth management products through China Evergrande Grouper.

Today, many fear they will never get their investments back after the cash-strapped real estate developer recently stopped paying off some investors and raised the global alarm bells over his massive debt.

Some protested at Evergrande’s offices, refusing to agree to the company’s plan to provide payments with discounted apartments, offices, shops and parking lots, which it began implementing on Saturday. .

“I bought from property managers after seeing the ad in the elevator because I trusted Evergrande to be a Fortune Global 500 company,” said the owner of an Evergrande property in the home province of conglomerate, Guangdong, nicknamed Du.

“It is immoral that Evergrande does not repay my hard-earned money,” said the investor, who last year invested 650,000 yuan ($ 100,533) in the wealth management products (WMP) of Evergrande at an interest rate of over 7%.

More than 80,000 people – including employees, their families and friends as well as owners of Evergrande properties – have bought WMPs that have raised more than 100 billion yuan in the past five years, a sales manager said. Evergrande Wealth, launched in 2016 as a peer-to-peer (P2) online lending platform that was originally used to finance its real estate projects.

Some 40 billion yuan of investments are underway, said the person, declining to be named because he was not authorized to speak with the media.

China Evergrande did not respond to a request for comment on Tuesday, which was a public holiday in China.

With over $ 300 billion in debt, Evergrande’s liquidity crisis rocked global markets this week. The company has pledged to reimburse the investors of WMP.

CHRISTMAS PROMOTION

China’s decades-long efforts to deleverage its economy have prompted companies to resort to off-balance sheet investments in search of finance.

After Beijing further capped real estate developers’ debt levels last year, the most indebted players like Evergrande felt even more pressure to find new sources of capital to alleviate growing liquidity stress. turning to employees, suppliers and customers to get money through commercial paper, trust and wealth. management products.

Evergrande Wealth began selling WMPs to individuals in 2019 after a regulatory crackdown caused the P2P lending industry to collapse, said the sales manager and another Evergrande employee who bought the WMPs.

To attract investors, the sales manager gave gifts such as Dyson air purifiers and Gucci handbags to everyone who bought more than 3 million yuan from WMP in a Christmas year promotion. last.

A product brochure provided by the sales manager seen by Reuters showed that WMPs are categorized as fixed income products suitable for “conservative investors looking for stable returns.”

‘PRODUCTS OF FACTO EVERGRANDE’

In two products sold last November, a Qingdao construction company was looking to raise up to 10 million yuan with an annualized return of 7% in one and 20 million yuan with returns ranging from 7.8% to 9, 5%, depending on the size of the investment, into another. The minimum investments were 100,000 yuan and 300,000 yuan, respectively.

Evergrande also typically offers an additional return of up to 1.8% to some investors, which can push returns above 11% for a 12-month investment, the sales manager said.

The proceeds were to be used for working capital for Qingdao Lvye International Construction Co, according to the documents. The company could not be reached for comment on a holiday.

The repayment would come either from the income of the issuer or from Evergrande Internet Information Service (Shenzhen) Co, a subsidiary that manages Evergrande Wealth and promises to cover principal and interest if an issuer does not repay, according to the prospectus.

The sales manager said the Qingdao-based company is working on Evergrande projects and will use the payment from Evergrande when completed to reimburse investors.

“It’s a de facto Evergrande product,” the person said.

Other highly leveraged 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 money that should have gone to issuers to fund its own projects, and of not disclosing enough the risks.

They also complained that they were misled by the stature of its president, Hui Ka-yan, noting that he was seated prominently at a celebration in 2019 of the 70th anniversary of the founding of the People’s Republic. from China.

“Investors trusted Evergrande and bought Evergrande WMPs out of love and faith in the Party and the government,” they wrote.

($ 1 = 6.4655 yuan Chinese renminbi)

Reporting by Zhang Yan and Tony Munroe, with additional reporting by Samuel Shen, Jason Xue and Clare Jim Editing by Shri Navaratnam

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