SHENZHEN, China—Wu Lei says his small construction company in central China has accepted commercial paper from property developer Evergrande as payment for two years but with that paper’s value now in doubt, his firm is on the verge of collapse.
China Evergrande Group, saddled with more than $300 billion in total liabilities equivalent to 2 percent of China’s GDP, is in the throes of a liquidity crisis that has it scrambling to raise funds to pay its many lenders and suppliers.
Wu, 35, was one of around a hundred protesters who descended on the headquarters of the country’s No. 2 real estate developer in Shenzhen this week desperately seeking assurances of payment.
“We were working for Evergrande, so our suppliers trusted us with the materials without us paying upfront. Now they’re suing me, courts have frozen my property and I’ve sold my car. And I still have employees who need to be paid,” he said.
The plight of Wu, and many others like him, has thrown a spotlight on the extensive use of commercial paper in China’s property sector. Developers favor it as they prefer to not pay upfront and because it doesn’t count as interest-bearing debt. The paper promises contractors and suppliers payment on a future fixed date, usually within one year.
Owed 500,000 yuan ($78,000) with another 2 million yuan due in March, Wu has now gone back to his hometown of Kaifeng in Henan province to pursue his claims in court but is worried it may take months to settle.
Evergrande says it is working hard to repay investors in its wealth management products and is in talks with banks to roll over loans, but has not mentioned smaller suppliers and contractors. Financial markets, meanwhile, have priced in likely defaults on its bond payments