Evergrande Crisis Escalates as Protests Break Out Across China

© Reuters Evergrande Crisis Escalates as Protests Break Out Across China

(Bloomberg) -- China Evergrande Group is facing mounting protests by homebuyers, retail investors and even its own employees, raising the stakes for authorities in Beijing as they try to prevent the property giant’s debt crisis from sparking social unrest.

Police descended on Evergrande’s Shenzhen headquarters late Monday after dozens of people gathered to demand repayments on overdue wealth management products. Protesters numbered in the hundreds on Sunday, Caixin reported.

Evergrande told employees at its office in Shenyang, near the border with North Korea, to work from home after staffers who bought the company’s WMPs staged a protest over the weekend, a person familiar with the matter said. In Guangzhou, angry homebuyers surrounded a local housing bureau last week to demand Evergrande restart stalled construction.

Unconfirmed videos of protests against the developer in other parts of China were being shared widely on Weibo (NASDAQ:WB), the country’s popular microblogging platform. There’s no indication that any of them have turned violent. 

The latest uproar follows Evergrande’s proposal late last week to impose lengthy repayment delays on holders of WMPs, the lightly regulated investment vehicles that have become a key source of funding for the developer. While Evergrande tweaked its plan on Monday in an attempt to mitigate the backlash, retail and institutional investors will still face delays unless they accept repayment in the form of Evergrande-developed properties.

Small-scale protests over troubled investment products aren’t unheard of in China, but they’re rare enough to attract attention from authorities who put a premium on social stability and have little tolerance for unsanctioned gatherings.

Whether they prompt Xi Jinping’s government to change tack on Evergrande remains to be seen. China’s top financial regulator signed off on the developer’s plan to renegotiate payment deadlines with banks and other creditors in August, a person familiar with the matter said last week. It’s unclear if officials had given explicit guidance on WMPs.

Evergrande didn’t respond to requests for comment on Monday.

With more than $300 billion in liabilities, the developer has become one of the most systemically important companies in China. On top of its obligations to WMP investors and bondholders, it owes about $147 billion in trade and other payables to suppliers and received down payments on yet-to-be-completed properties from more than 1.5 million home buyers as of December.

Evergrande’s bonds are pricing in a near-certain likelihood of default, with its dollar note due 2022 falling by about 2 cents to 31 cents on Monday.

The developer has said it’s exploring the sale of interests in its listed electric vehicle and property services units, as well as other assets, and seeking to bring in new investors and renew borrowings. It’s also discounting properties aggressively to boost sales, with mixed success. Contracted sales, including those to suppliers and contractors to offset payments, tumbled 26% last month from a year ago.

Evergrande said in August it was forced to suspend work on some projects due to overdue payables. The company’s billionaire founder, Hui Ka Yan, pledged to complete projects this month, issuing what he called a “military order” to ensure property construction and delivery.

Evergrande proposed three repayment options for WMPs on Monday, according to two investors who were informed by their product managers and asked not to be identified. They included repayment through cash installments, properties or investors’ payables on residential units they have already purchased, the people said.

Retail investors can choose to be repaid 10% of their principal and interest every quarter, starting the final working day of the month due.

The new proposal treats all investors equally, in contrast to an interim plan released late last week that prioritized smaller investors, according to people familiar with the matter.

When Evergrande stopped repaying some investors last Thursday, those holding less than 100,000 yuan ($15,488) were to be paid in full and those with exactly 100,000 yuan were to get half back, according to two investors briefed earlier. Those holding more than 100,000 yuan were to see payments extended by two to four years and amortized.

Apart from the cash option, the new plan allows investors to purchase Evergrande’s residential units, offices, stores and parking units at deeper discounts to offset wealth products due. If investors have bought Evergrande’s residential units by Sept. 12, they can also request to use the money they’re owed to offset payments. Details are still pending for the second and third option.

Evergrande doesn’t disclose details of its WMP issuance, making it difficult to gauge the size of its outstanding products.

A local TV station in Anhui province reported that thousands of people in the province hold overdue Evergrande WMPs that total between 1.3 billion and 1.8 billion yuan, citing a wealth management consultant at Evergrande named Liu Yuntin. The consultant said 70% to 80% of Evergrande’s own employees in Anhui purchased such products and that’s likely to be the situation for branches nationwide.

Evergrande repeatedly told staff that it would be responsible for interest and principal and that Hui Ka Yan himself would guarantee payments, Liu said.

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