SHANGHAI (Reuters) – Lured by the promise of yields approaching 12%, gifts such as Dyson air purifiers and Gucci bags, and the guarantee of China’s top-selling developer, tens of thousands of investors bought wealth management products through China Evergrande Group.

    Many fear that their investments may not be returned after the cash-strapped developer of property stopped paying investors. It also set off alarm bells across the globe about its large debt.

Evergrande’s plans to make payment for discounted apartments, offices and parking spaces, began on Saturday. Some protestors have been protesting outside the offices.

    “I bought from the property managers after seeing the ad in the elevator, as I trusted Evergrande for being a Fortune Global 500 company,” said the owner of an Evergrande property in the conglomerate’s home province of Guangdong surnamed Du. 

    The investor had invested 650,000 Yuan ($100 533) in Evergrande wealth management products last year, at an interest rate greater than 7.7%.

    More than 80,000 people – including employees, their families and friends as well as owners of Evergrande properties – bought WMPs that raised more than 100 billion yuan in the past five years, said a sales manager of Evergrande Wealth, launched in 2016 as a peer-to-peer (P2) online lending platform that originally was used to fund its property projects. 

    The remaining investments amount to 40 billion yuan, according to the individual, who declined to identify themselves as they weren’t authorized to talk to the media.

China Evergrande declined to comment due to Tuesday’s holiday.

Evergrande has more than $300 billion of debt. This week’s liquidity crisis rattled the global markets. WMP investors have been promised that the company will repay them.

CHRISTMAS PROMOTION

China’s years-long effort to deleverage its economy has pushed companies to resort to off-balance sheet investments in search of funding.

Evergrande was further pressured to seek new funding sources after Beijing lowered the debt level of its property developers. Evergrande and other indebted companies felt even greater pressure to do so.

Evergrande Wealth sold WMPs to people in 2019, after the regulatory crackdown that led to the collapse of the P2P lending industry. The sales manager at Evergrande and an employee who purchased the WMPs said this.

    The sales manager gave gifts like Gucci handbags and Dyson air purifiers to investors who purchased more than 3,000,000 yuan worth of WMPs last Christmas.

Reuters obtained a product leaflet from the sales representative that indicated the WMPs can be classified as fixed-income investments suitable for “conservative investor seeking steady returns”.

‘DE-FACTO EVERGRANDE PRODUCT’

In two products sold last November, a construction company in Qingdao was looking to raise up to 10 million yuan with annualised yield of 7% in one and 20 million yuan with yields ranging from 7.8% to 9.5%, depending on the investment size, in another. Minimum investment amounts were minimum 100,000 and 300,000. Yuan respectively.

    The sales manager said that Evergrande usually provides additional yields up to 1.8% to some investors. These can boost returns to higher than 11% for 12-month investments. 

    According to documents, proceeds would be used for Qingdao Lvye International Construction Co.’s working capital. It was impossible to reach the company for comment on a holiday.

The prospectus stated that repayment would be made from either the income of the issuer or Evergrande Internet Information Service Shihen (Co) Co. This subsidiary runs Evergrande Wealth, and will pay the principal and interest in the event the issuer defaults.

    Sales manager stated that Qingdao’s company was currently working on Evergrande-related projects, and would repay investors with Evergrande payments.

    “It’s a de-facto Evergrande product,” the person said.

Similar products have been used by other highly leveraged Chinese conglomerates, such as China Baoneng and HNA Group.

Guangdong’s WMP investors filed a petition against Evergrande alleging that it used money meant to go to the issuers in order to finance its own projects without adequately disclosing risks.

    Hui Kayan, its chairman, was also criticized by investors for misleading them. This is despite the fact that Hui Ka-yan was prominently present at a celebration of the 70th anniversary of China’s founding of the People’s Republic of China.

    They wrote that Evergrande was trusted by investors and they bought Evergrande’s WMPs because of their love and faith for the Party and government.

($1 = 6.4655 renminbi)