Evergrande debt crisis traps retail investors, builders and homebuyers

A man drives a vehicle past the construction site of Evergrande Cultural Tourism City, a project developed by China Evergrande Group, in Taicang, Suzhou, Jiangsu Province, China, September 23, 2021. REUTERS / Aly Song

  • Struggling developer owes WMP and home buyers
  • Builders of Evergrande projects are not paid
  • President reiterates top priority to help investors

SUZHOU / SHENZHEN, China, September 23 (Reuters) – At a strangely quiet construction site in east China’s Suzhou, worker Li Hongjun says property developer Evergrande’s debt crisis means he will soon be run out of food. Christina Xie, who works in exporting in the bustling southern city of Shenzhen, fears Evergrande has swallowed up her savings.

The pair, united like legions of others through their ties to the vast China Evergrande group (3333.HK), show the scale of the challenge facing the Chinese government in handling its financial woes, though economists downplay the risk of a “Lehman moment” style collapse.

Evergrande, with $ 305 billion in unpaid debts, recently stopped repaying some investors and suppliers and halted construction work on projects across the country, setting off a global wake-up call for upcoming interest payments. .

Li, who says he hasn’t been paid since August, does minimal maintenance among half-finished apartment buildings whose exterior envelopes conceal rubble-filled interiors. Sand and concrete slabs cover a newly finished marble floor in a future home.

“In the last two days, I have planned to go to the government,” he said. ” What can I do ? Soon I will have no more food to eat. If I don’t have food to eat, I will have to go to the government to eat. “

Xie invested 380,000 yuan ($ 58,770) of savings in a wealth management product sold by Evergrande and says she did not receive a payment of 30,000 yuan because of it earlier this month. this.

“It’s all my savings. I intended to use it for myself and my partner’s old age. I worked day and night to save, now it’s over,” said Xie, to whom it was said that the wealth management product she bought would bring in 7.5% a year.

“Evergrande is one of the biggest real estate companies in China … my consultant told me the product is guaranteed.”

Xie is still hoping to buy back her investment, one of the billion yuan of wealth management products (WMP) sold by Evergrande, but she is not happy with any of the options suggested so far, which include the offering. of property. Read more

Evergrande did not immediately respond to a request for comment, but President Hui Ka Yan said in an overnight meeting on Wednesday that the top priority was to help investors buy back their products and that door-to-door deliveries should be insured. Read more

PROTESTS

Angry homebuyers and retail investors have launched protests in several cities in recent weeks – anathema to the stability-obsessed ruling Communist Party of China.

Property accounts for 40% of assets held by Chinese households, according to Macquarie, which means contagion from a potentially messy Evergrande collapse could spill over beyond households and investors to suppliers and construction workers. .

A debt crackdown on the industry ended an era of freewheeling construction with borrowed money that became infamous for ghost towns and roads to nowhere. L4N2QP0VF

“It’s important from a social stability perspective to make sure Chinese retail investors get their money back and buyers get their homes delivered,” said Carlos Casanova, senior economist for Asia at the Union Bancaire Privée.

Capital Economics analysts estimated that at the end of June, Evergrande still had to complete about 1.4 million properties, or about 1.3 trillion yuan ($ 202 billion) in pre-sale liabilities.

A woman who bought Evergrande property in the northeastern city of Shenyang and asked not to be identified, has been waiting since April 2020.

She said she was spending 3,000 yuan per month on mortgage payments out of the 600,000 yuan she had already paid, but that the construction site is now closed and that she doubts Evergrande will meet its last delivery deadline on. December 30.

Meanwhile, around 40 billion yuan of the group’s WMP are in circulation, a sales manager at Evergrande Wealth told Reuters. Read more

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, the sales manager said. to Reuters, attracted by the promise of yields of around 12%. .

Regulators summoned Evergrande executives last month and issued a rare warning that the company must reduce its debt risks and prioritize stability. Read more

(This story has been passed on to correct a typo in the first paragraph)

($ 1 = 6.4659 yuan Chinese renminbi)

Additional reports by Clare Jim, Tom Westbrook and Andrew Galbraith; written by Gabriel Crossley; edited by Tony Munroe and Philippa Fletcher

Our Standards: Thomson Reuters Trust Principles.

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