Business

China Oceanwide retail investors look to Blackstone deal for hope

When US private equity group Blackstone announced in June it would buy International Data Group, a research and media company based in Massachusetts, retail investors in China anxiously watched the news. this.

The $1.3 billion deal, completed on Wednesday, will transfer money to China Oceanwide Holdings, the former owner of IDG and a property developer with an international footprint, and a range of loans. unpaid debt.

The sale is a rare link between global trading activity and the plight of retail investors with exposure to China’s vast economy. Real estate industry, where developers including Evergrande and Kaisa are struggling to settle billions of dollars in debt.

Oceanwide’s need for cash also highlights risks in China’s huge wealth management industry, where some property developers have raised capital without disclosing the amount in their financial statements. surname.

Oceanwide investors allege that they were not reimbursed for investment products they purchased from the company’s subsidiaries last year when the company’s financial health was under great pressure – and said that they have been informed that the money from the sale of IDG will be transferred to repay their debt.

“For investors, IDG is the last hope,” said an owner of Oceanwide wealth management products. Another said “the hole is too big”.

Big Read: Liquidity squeeze for listed developers

Several investors said they had filed formal complaints with authorities in China, including the China Securities Regulatory Commission and a police economic investigation bureau in Shanghai. .

Oceanwide declined to comment.

Oceanwide bought IDG in 2017, in an ambitious period of overseas expansion that has reverberated across Chinese companies – led by conglomerates such as HNA and Dalian Wanda – that leaves the company with a substantial real estate stake in the US.

But the group has been embroiled in financial troubles over the past two years, culminating in the foreclosure of assets by creditors in San Francisco in October. Strict limits imposed by Beijing on asset leverage , which has been brought into the global spotlight by the recent circumstances of Evergrande, which also makes it more difficult for Oceanwide and other Oceanwide companies to raise money and meet obligations.

A crowd inside the company building, holding cell phones
In September, angry investors took to Evergrande’s Shenzhen headquarters to protest payment delays for wealth management products it had secured © David Kirton/Reuters

Trouble in wealth management products involving developers has even led to social unrest. In September, Angry investors dropped at Evergrande’s Shenzhen headquarters to protest against payment delays for the wealth management products it has secured.

Kaisa, another developer, recently confirmed that the investment products it guarantees missed payments. Fitch, the rating agency, noted this month that the company had not recorded the products on its financial statements.

Difficulties occurred along with international bond payments from some companies. “We expect Chinese developer defaults to increase over the next six to 12 months,” said Edward Chan, an analyst at S&P.

Oceanwide, run by billionaire founder Lu Zhiqiang until 2020, has become a financial conglomerate with property developments in New York, Hawaii and San Francisco along with projects in mainland China. .

But in early 2019, the audit firm PwC resigned. The group’s financial position worsened during the coronavirus pandemic, and S&P and Fitch stopped grading the bonds at the company’s request in March 2020.

Column chart of Net Income (HK$ million) shows China Oceanwide Holdings' financial health has deteriorated

PwC declined to comment.

The San Francisco project was foreclosed upon after about $330 million worth of bonds matured and another Oceanwide subsidiary defaulted in May. A long effort to acquire Genworth Financial, an American insurer, failed in April ahead of the IDG sale. Blackstone declined to comment.

In its final Oceanwide report early last year, S&P downgraded its rating to 3 C and warned of “increased repayment risks to Oceanwide’s near-maturity liabilities.”

But Oceanwide will continue to issue wealth management products in the country in 2020 through a company called Oceanwide Investment Fund Management, a subsidiary of Minsheng Wealth, a wholly-owned financial services firm. wholly owned by China Oceanwide Holdings.

The 75-page offering for a product released in November 2020 said the proceeds would be invested in the credit markets at large.

Investors said the payments largely stopped in February. In July, Oceanwide announced plans to repay the debt on its account on WeChat, the Chinese messaging platform, which the company said would pay off in full by March 2022.

A 39-year-old investor, who said he had spent Rmb3 million on a wealth management product recommended by a friend, said that the local authorities had “go a long way in preventing investors from organizing their own”. office”.

Another investor in a major eastern Chinese city said that after the payments stopped working and they reported the problem to the police, they became the target of government surveillance. When they arrived at Oceanwide’s headquarters in Beijing, they said they were followed by seven officials from their home city.

“The local government has invested a lot more in getting us to behave than in solving our problems,” the person said. “That’s because they can be punished if we continue to report our case to the central government.”

Reporting by Thomas Hale in Hong Kong, Sun Yu in Beijing and Wang Xueqiao in Shanghai

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