SHANGHAI Reuters - Lured by the promise of yields approaching 12%, gifts 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 Group.
Thousands fear they will never get their investments back after the cash-strapped developer stopped repaying some investors and set off global alarm bells over its massive debt.
Some protesting at Evergrande offices, refusing to accept the company's plan to provide payment with discounted apartments, offices, stores and parking units, which it began to implement on Saturday night.
I bought from the property managers after reading the ad in the elevator, as I trusted Evergrande to be a Fortune Global 500 company, said the owner of an Evergrande property in Guangdong province surnamed Evergrande.
I'm not comfortable with Evergrande going to pay my hard-earned money back, said the investor. He invested 650,000 yuan $100,533 into Evergrande Wealth Management products WMPs last year at an interest rate of more than 7%.
More than 80,000 people bought WMPs which raised more than 100 billion yuan in the past five years, said a sales manager of Evergrande Wealth, launched in 2016 as a peer-to-peer P 2 online lending platform that originally was used to fund its properties projects.
Some 40 billion yuan of the investments are outstanding, said the person, refusing to be named because they were not authorised to speak with the media.
China Evergrande failed to respond to a request for comment on Tuesday, which was a public holiday in China.
This week, with more than $300 billion in debt, global markets were rattled by Evergrande's liquidity crisis. The company has vowed to repay WMP investors.
China's long efforts to deleverage its economy pushed companies to resort to off-balance sheet investments in search of funding.
After Beijing further capped the debt levels of property developers last year, the most indebted players like Evergrande felt even more pressure to find new sources of capital to ease mounting liquidity stress, turning to employees, suppliers and clients for cash through commercial paper, trust and wealth management products.
In 2019 Evergrande Wealth began to sell WMPs to individuals after a regulatory crackdown led to a collapse of the P 2 P lending sector, said the sales manager and another Evergrande employee who bought the WMPs.
To attract investors, the sales manager offered gifts such as Dyson air purifiers and Gucci handbags to each person who bought more than 3 million dollars of WMPs during Christmas promotion last year.
A product leaflet supplied by the sales manager cited by Reuters shows the WMPs are categorised as fixed income products suitable for stable investors seeking steady returns In two products sold last November, a construction company in Qingdao was looking to raise up to 10 million yuan with annualized yield of 7% in one and 20million yuan with yields ranging from 7.8% to 9.5%, depending on the investment size in another. Minimum investments were 300,000 yuan and 100,000 yuan, respectively.
Evergrande also usually offers additional yield of up to 1.8% to certain investors, which can push returns to above 11% for a 12 months investment, said the sales manager.
Proceeds were to be used for Qingdao Lvye International Construction Co's working capital, the documents showed. The firm was not able to come to comment during a public holiday.
Repayment would either come from the issuer's income or from Evergrande Internet Information Service Shenzhen Co, a subsidiary that runs Evergrande Wealth and promises to cover the principal and interest if an issuer fails to repay, the prospectus stated.
The sales manager said that the Qingdao company was working on Evergrande projects and would use the payment from Evergrande upon completion to repay investors.
Other highly leveraged Chinese conglomerates including HNA Group, which declared bankruptcy earlier this year, and China Baoneng have used similar products.
In a petition to various government bodies, a group of WMP investors in Guangdong accused Evergrande of inappropriately using money that should have gone to the issuers to fund its own projects and not sufficiently discloseing the risks.
They also complained that they were misled by Hui Ka-yan's chair, pointing out that he was prominently present during a 2019 Celebration of the 70th anniversary of founding of the People's Republic of China.
The investors bought Evergrande and trusted Evergrande's WMPs out of our trust in the Party and government, they wrote.