As China Evergrande’s debt crisis deepens, unpaid small business owners speak of despair By Reuters
By David Kirton
SHENZHEN, China (Reuters) – Wu Lei says his small construction company in central China has accepted commercial paper from property developer Evergrande as payment for two years but with that paper’s value now in doubt, his firm is on the verge of collapse.
China Evergrande Group is currently in a liquidity crisis. It has more than $300B in total debts, equivalent to roughly 2% of China’s GDP.
Wu, aged 35, was just one of more than 100 people who protested at the headquarters. This week, Wu was one of around 100 protesters who gathered at the headquarters of China’s No. 2 real estate developer Shenzhen in desperate search for payment assurances.
We were contracted by Evergrande and our suppliers gave us the materials for free. They’re now suing me. The courts have placed a freeze on my assets and I’ve already sold my car. He said that he still has employees to pay.
Wu and other like-minded individuals have highlighted the large use of commercial paper within China’s property industry. Because developers don’t need to pay upfront or count it as interest-bearing debt, they favor it. This paper guarantees contractors and suppliers that they will be paid at a later date. Usually, it is within one calendar year.
Wu, who owes $500,000 ($78,000), and another $2 million due in March. Wu now returns to Kaifeng, Henan provincial to continue his legal claims. But he is concerned that the settlement may take many months.
Evergrande claims it works hard to repay investors through its wealth management products. It is currently in discussions with banks about rolling over loans but hasn’t mentioned small suppliers or contractors. Financial markets, meanwhile, have priced in likely defaults on its bond payments https://www.reuters.com/business/china-evergrande-applies-bond-trading-suspension-after-downgrade-2021-09-16 and expectations are high that its assets will have to be restructured.
While it’s unclear how much Evergrande, as a whole, has issued of commercial paper, the flagship unit Hengda Real Estate Group Co Ltd revealed that its assets totaled $32 Billion as of December 2020.
Even with its huge debt load Evergrande was still highly respected in normal business circles. Its commercial paper was traded even in non-construction industries.
One of Guizhou’s poorest counties claimed that Evergrande had provided commercial paper to him and that he was still waiting 1.5 million yuan for payment.
He said, “I feel sad, and I’m sorry that my family has to go through this.” Due to rumours that protesters were being threatened with physical harm, he declined to identify himself.
On Monday protesters were around 100, but numbers dropped to just two dozen on Thursday. Many are losing faith or simply running out of cash.
A protester who only gave his surname Zhang, left Guangzhou for Guangzhou Wednesday following rumours that the company would make an announcement.
He said, “But they may just be trying to divide us by dragging our bodies all over the place.”
On Thursday at least two protesters were detained. Others were looking for yoga mats cheap enough to be used as temporary bedding and sleeping rough.
I’m forced to live on the streets, eating what little food is left. I can’t afford to leave Shenzhen even if I wanted to,” said one shop owner from Jiangsu province.
($1 = 6.4388)