Evergrande crisis: developer revises payment plan for wealth management investors as debt deadlines pile up

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  • Evergrande Wealth Management says it will pay investors 8,000 yuan (US$1,259) each for December, January and February
  • Under the revised plan for the wealth management products, all interest payments will be paused from today.

Embattled China Evergrande Group announced a new plan to repay investors in its wealth management products, in a move designed to reduce the number of individuals exposed to its debt crisis.

Evergrande Wealth Management said on Friday it will pay principal first on the overdue products, with all investors receiving 8,000 yuan (US$1,259) per month until February.

It replaces the company’s previous plan, unveiled in mid-September, in which it promised to pay 10 per cent of principal and interest in the month when the products were due, and another 10 per cent in each quarter after that. It also offered the option for investors to use the overdue proceeds to obtain houses or parking spaces and to pay the remaining balance on housing units.

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Under the revised plan for the wealth management products, all interest payments will be paused from today.

The amended plan aims to “take into consideration all the investors,” according to an announcement on the company’s website. It will reveal a new arrangement for future payments in the second half of March, it said.

The change of strategy came as the world’s most indebted property developer faces a growing tide of debt maturity deadlines, unnerving tens of thousands of investors.

The dial-back of the earlier plan is seen as an attempt to reduce the exposure of its debt woes to smaller individual investors, in line with government guidance.

The wealth management unit and Evergrande’s property subsidiary raised about 200 billion yuan (US$31 billion) in five years through shell companies, some investors told South China Morning Post previously, citing legal papers handed to the police in September. Redemption of investments by 200,000 individuals, estimated at 40 billion yuan in total had been paused by the cash-starved company, the investors said.

As the return on the investments of the wealth management branch was “non-ideal”, the previous payment proposal was hard to implement, the company said.

The Shenzhen-based company is experiencing huge difficulties in paying back its debt. It did not pay the US$255 million coupons due on Tuesday for its June 2023 and 2025 bonds, Reuters reported on Friday citing bondholders. The company has a 30-day grace period before the bonds are declared defaulted.

Evergrande was labelled as in default by Fitch Ratings and S&P Global Ratings earlier in December, after it missed the grace period deadline to pay back another batch of bonds on December 6. In the coming year, it has US$2 billion of dollar bonds due on March 23, and US$1.45 billion of dollar bonds due on April 11, Bloomberg data showed.

Under the revised plan for the wealth management products, previous payments – including interest – will be counted as payment of the principal. The company said it will also suspend redemptions for certain current and former executives and their family members.

In early October, Evergrande had demanded six managers of the wealth management arm return their redemptions, and reprimanded them.

The wealth management unit is trying to speed up the sales of its assets and will use all the funds for repayment of the wealth management products, it added.

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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