Evergrand Real Estate Group Limited Update
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The company said the senior Chinese property group later told retail investors that six senior Evergrand executives would face “severe punishment” for being initially released on investment products because they could not pay on time.
This admission comes before a serious fortnight for developers, who are struggling to pay investors, banks and bondholders, as well as complete flats for home buyers who have paid in advance for their new property.
Hong Kong-listed shares in Evergrand fell as much as 15 percent in early trading on Monday, as concerns about the health of China’s real estate sector triggered widespread sales. The Hang Seng property index, which follows a dozen listed developers, was down more than 6 percent, and Chinese insurance company Ping An, whose stock fell 5 percent on Friday on fears of infection from Evergrand’s growing debt problem, fell nearly a cent.
Hundreds of retail investors protested last week at the Evergrand headquarters in the southern city of Shenzhen, with executives saying they needed more time to pay interest and capital on the high-yield asset management products issued by the group. They were joined by participants who said they had not been paid either.
Du Liang, a senior executive at the company, told investors that Evergrande had used at least Rmb40bn (6.2bn) from asset management sales to fund construction projects across the country, which had participated in settlement talks. In addition to the money borrowed from EverGrand 80,000 retail investors, the group owes other creditors and suppliers an estimated 300 300 billion.
In a statement over the weekend, Evergrande said more than 40 group executives bought its investment products as of May 1. Six of them, who were initially released on their investment, will get their money back.
“All funds redeemed by the managers will have to be returned and strict fines will be imposed,” the company said, proposing to return the investors with the vacated flats and parking lots.
It is common for overweight Chinese companies to buy such products to help fund management for their owners and employees. Ding Yumei, the wife of Evergrand founder and chair Hui Ka Yan, paid Rmb20m for the group’s investment products in July.
Evergrand’s efforts to quell investor anger have raised many challenges for the Chinese government in its debt crisis, which the company is reluctant to bail out even though it could have far-reaching consequences.
Some Evergrande bonds have recently traded as low as 20 cents on the dollar, while other Chinese property group debt yields have risen sharply.
The two Evergrand executives, speaking on condition of anonymity, told the Financial Times that the group’s activities could be taken over by local governments and large state-owned developers on a “region-by-region basis”, but such complex rescue would be a “last resort”.
“Banks must increase our loans,” said an executive. “If they stop working with us, we will die now. How [the government] Going to deal with a lot of unfinished [property] Managing projects and so many retail investors? “
Evergrand’s Hong Kong-traded shares are down about 90 percent from last year.
The Chinese government recently organized a bailout of other government-controlled asset managers and state-owned asset managers in Huang, an indefinite state by the bank. But reluctant to do the same for a large private sector company like Evergrand.
This year the HNA Group, an aviation and tourism organization, applied to start bankruptcy proceedings in its own province of Hainan. Although apparently a private sector group, the HNA was eventually controlled by the Hainan provincial government, which was tasked with overseeing Beijing’s restructuring.
Additional report by Hudson Lockett of Hong Kong