Evergrande debt crisis traps retail investors, builders and home buyers

Evergrande debt crisis traps retail investors, builders and home buyers

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

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  • Struggling developer owes WMP and home buyers
  • The builders of the Evergrande projects have not been paid
  • The president reiterates that the top priority is to help investors

SUZHOU/SHENZHEN, China, September 23 (Reuters) – At an eerily quiet construction site in eastern China’s Suzhou, laborer Li Hongjun says property developer Evergrande’s debt crisis means he will soon run out of food. Christina Xie, who works in export in the busy southern city of Shenzhen, fears Evergrande has swallowed up her savings.

The pair, united like legions of others by their ties to the sprawling China Evergrande Group (3333.HK), show the scale of the challenge facing the Chinese government in dealing with its financial woes, though economists play down the risk of a “Lehman moment”. collapse of styles.

Evergrande, with $305 billion in outstanding debt, recently stopped paying some investors and suppliers and halted construction work on projects across the country, setting off global alarm bells over interest payments to come.

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

“For the past two days I have been planning to go to the government,” he said. ” What can I do ? Soon I won’t have anything to eat. If I have nothing to eat, I will have to go to the government to eat. »

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

“It’s all my savings. I was planning to use it for me and my partner’s old age. I worked day and night to save, now it’s over,” said Xie, who was told the wealth management product she purchased would return 7.5% a year.

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

Xie still hopes to redeem her investment, one of the billion yuan wealth management products (WMPs) sold by Evergrande, but she is not satisfied with any of the options suggested so far, which include the offer of property. Read more

Evergrande did not immediately respond to a request for comment, but Chairman Hui Ka Yan said at a meeting late Wednesday night that the top priority was to help investors redeem their products and deliveries to home had to be ensured. Read more


Angry homebuyers and investors have launched protests in several cities in recent weeks – anathema to the ruling Communist Party, which is obsessed with stability in China.

Property accounts for 40% of assets held by Chinese households, according to Macquarie, meaning contagion from a potentially disorderly collapse of Evergrande could ripple beyond households and investors to suppliers and workers in the construction.

A debt crackdown in the sector 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 home buyers get their homes delivered,” said Carlos Casanova, senior Asia economist. to 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 debt before the sale.

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

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

Meanwhile, about 40 billion yuan of the group’s WMP are outstanding, a sales director at Evergrande Wealth told Reuters earlier. Read more

More than 80,000 people – including employees, their families and friends as well as owners of Evergrande properties – have purchased WMPs which have raised more than 100 billion yuan in the past five years, the sales manager told Reuters, attracted by the promise of returns approaching 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 reclassified to correct a typo in the first paragraph)

($1 = 6.4659 Chinese yuan renminbi)

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

Our standards: The Thomson Reuters Trust Principles.

Robert P. Matthews