The giant Chinese real estate group "Evergrande" announced on Wednesday that it had reached an agreement with local bondholders that allows the group to avoid defaulting on one of its interest payments. The company's real estate unit, "Hengda", stated that it has negotiated a plan to pay the interest due on its bonds for 2025, which Bloomberg estimated at approximately $35.9 million, according to AFP. The statement did not mention any plan to pay interest on foreign bonds. "Hengda" asserted that investors who purchased bonds prior to September 22, 2021, were entitled to this interest payment.
Global financial markets have fallen due to fears of a potential collapse of the largest real estate developer in China and instability in both the Chinese and even the global economy, after it defaulted on approximately $300 billion in debts. The real estate sector is a key driver of China's economy, accounting for about a quarter of the country's GDP and playing a significant role in the recovery following the COVID-19 pandemic.
A report by Reuters highlighted the methods used by the company to persuade individuals to invest their money through advertisements promising significant annual returns from wealth management products. However, following the company's announcement that it may default on its clients' dues, these investors have expressed severe concern and anger. Many have rejected the company’s proposal to pay these dues through offering discounted apartments, offices, stores, and parking spaces.
A property owner in Guangdong province stated, "I bought from the property managers after seeing the advertisement in the elevator because I trusted one of the top 500 companies in the world." The investor, who allocated 650,000 yuan (approximately $100,000) into Evergrande's wealth management products last year at an interest rate exceeding 7 percent, added, "It is unethical not to repay 'Evergrande' the money that I earned through hard work."
More than 80,000 people, including employees, their families, and friends, as well as property owners, purchased the company's investment products, which raised over 100 billion yuan (around $40 billion) in the past five years. A sales manager at the company, who declined to be named, told Reuters that approximately 40 billion yuan (about six billion dollars) of investments were pending.
The agency stated that after Beijing set debt limits for property developers last year, heavily indebted players like "Evergrande" felt increased pressure to find new sources of capital to provide liquidity, turning to employees, suppliers, and customers for cash through stock exchanges and investment funds. To attract investors, the sales manager offered gifts such as "Dyson" air purifiers and "Gucci" bags to anyone who purchased more than three million yuan during a promotional event last Christmas.
The product brochure presented by the sales manager, which was reviewed by Reuters, classified wealth management tools as fixed-income products suitable for "conservative investors seeking stable returns." The company offers additional returns exceeding 11 percent for a 12-month investment.
Documents revealed that the company used the proceeds to supplement the working capital of another firm, leading investors to accuse "Evergrande" of using their money to fund its own projects, without sufficiently disclosing the risks. They complained about being misled regarding the status of its chairman, Hui Ka Yan, whose presence was prominent during the 2019 celebration of the 70th anniversary of the founding of the People's Republic of China. They wrote, "Investors trusted Evergrande and bought from its board members out of love and faith in the party and the government."
