Indebted developer China Evergrande is unlikely to escape crisis in wealth management unit, analysts say
- Even though Evergrande is trying to distance itself from its wealth management and insurance units, the two entities were crucial fundraising channels for their parent company, director of Beijing-based investment firm Chanson & Co says
- Local governments will not roll out more aggressive measures to support China’s property developers and affiliated wealth management companies, says another analyst speaking anonymously
Police in Shenzhen, where Evergrande is headquartered, said on September 18 that they had detained some staff at Evergrande Financial Management, after the company failed to repay investors.
Evergrande’s statement, issued the same evening, said neither the “criminal coercive measures” taken by the police against “relevant personnel” at the wealth management arm, nor the sale of Evergrande’s insurance arm to Hai Gang Life Insurer, a newly-established, state-owned insurance company, would have a substantial impact on the property developer’s businesses and operations.
“Even though Evergrande was trying to distance itself from its wealth management and insurance units, the two entities were crucial fundraising channels for their parent company … otherwise, why would Evergrande get into these new businesses in the first place?” said Shen Meng, director at Beijing-based investment firm Chanson & Co.
A China Evergrande accounting employee, who declined to be named due to the sensitivity of the matter, confirmed that the debt owed by Evergrande Financial Wealth Management was on the balance sheet of its parent company, and that “there was a good chance” the money pooled from its wealth management products went into China Evergrande’s real estate business.