HONG KONG -- Xu Jiayin, founder of China Evergrande Group, gave no hint of the looming crisis at his heavily indebted property empire as recently as June.
Surrounded by longtime backers including fellow tycoon Wang Zhongming of Shenzhen Greenwoods Investment Group, Xu waxed eloquent at a meeting with suppliers about his plans to slash debt even as news about delayed payments to contractors was starting to trickle out, according to two people familiar with the meeting.
It reminded them of a photo circulated by the company in September 2020 showing Xu with 35 smiling and clapping investors who had agreed not to press their rights to demand $13.3 billion back from him, crucial relief for Evergrande.
In another circulated photo taken not long after the supplier meeting, Xu mingled on a podium overlooking Tiananmen Square with other tycoons at the Chinese Communist Party's centenary celebration.
A tight-knit group of billionaires, some bonded by their love of poker, have pumped billions of dollars into Evergrande and its affiliates over the past decade. Not only did they help Xu rise to the top of his game, but they also headed off his fall from grace on several recent occasions.
Public appearances with his wealthy friends, a perception that he was supported by the top echelons of the Communist Party, and a sense that Evergrande had grown too big to fail gave comfort to investors as the 62-year-old tried hard to pull his company back from the brink.
Fast forward a few months and some of his poker pals have now deserted, nursing big losses. The government has yet to extend a helping hand. Vulture funds are circling. Xu's rivals are gunning for fire sales of Evergrande assets. Xu is staring at an uncertain future.
"Evergrande's demise has been foretold many times, including by ourselves," said Nigel Stevenson, an analyst at GMT Research in Hong Kong. "Such predictions have proved premature but dare we say it, this time could be different. Confidence appears to have evaporated and will be difficult to regain."
Xu's rags-to-riches story echoes those of many China's billionaires and also mirrors the country's fortunes. A former steel factory technician, Xu founded Evergrande in the southern city of Guangzhou in 1996. By 2017, he was China's wealthiest man.
A new book, "Red Roulette: An Insider's Story of Wealth, Power, Corruption, and Vengeance in Today's China," by Desmond Shum, ex-husband of billionaire Duan Weihong, describes how Xu, along with a high-ranking Communist Party official's daughter and her investor husband, went to Europe for a wine and shopping spree.
The group flew in a private jet with the men playing a Chinese card game called "fight the landlord." They proceeded to a Paris restaurant where they spent more than $100,000, drinking vintage wines.
A bond investor in the know also said Xu once ordered one of his jets to fly empty as he hopped on a friend's plane to play poker.
Forbes calculated that Xu received $8 billion in cash dividends during Evergrande's debt-fueled expansion since it went public in 2009. Retail investors owed money by the company have called him delusional and a cheat. The company has missed payments to suppliers, banks, small investors and offshore bondholders this year. Its cash and bank deposits can only meet two-thirds of the 240 billion yuan ($37.2 billion) debt due over the next year.
"Never be too sure in China where connections matter, but we certainly think Xu's luck this time has truly run out," said a fund manager who began selling out of Evergrande debt at the start of the year. "One factor that played a part in keeping what some considered a bankrupt company alive for the past two years or so was the hope China would thwart any collapse and the support base Xu boasted of. That is all turning out to be a myth."
Analysts and investors expect Evergrande to follow the path of other debt-laden conglomerates that are now being broken up by the authorities.
"We believe Evergrande will follow HNA's path," said Warut Promboon, head of research at Bondcritic in Hong Kong, referring to what was once one of China's most acquisitive conglomerates. HNA Group is set to be broken up into four entities focused on airlines, airports, finance and other businesses.
Reuters has reported that Beijing is pushing developers including government-owned companies to buy some of Evergrande's projects. Some Chinese media reported that Hopson Development Holdings, a much smaller developer, has agreed to buy 51% of Evergrande's property services arm.
Backing Xu has turned out to be a costly proposition for his billionaire friends this year, and for some it has proved too much.
In a major turning point last month, Evergrande's second-largest shareholder group, controlled by the family of Joseph Lau, declared their plan to exit. The group comprises Lau, his property company Chinese Estates Holdings and Kimbie Chan Hoi-wan, his wife and the company's chief executive.
They have been involved in almost every Evergrande fundraising since 2009. In January 2020, Chinese Estates and its controlling shareholders put in $1 billion when Evergrande sold $6 billion worth of notes, Hong Kong's Sing Tao Daily newspaper reported. Chan also invested 3 billion Hong Kong dollars ($385.4 million) earlier this year in Evergrande's electric vehicle unit.
On Wednesday, Chinese Estates' controlling shareholders offered to take the company private after a steep share price fall. The company earlier told minority shareholders that it could take losses this year of as much as HK$10.4 billion on its Evergrande investments. Directors are "cautious and concerned" about the financial news from China Evergrande, it said.
Lau and Xu are part of what is known locally as the "Big Two club" because of their shared fondness for a poker-like Chinese game of that name. The club also includes New World Development Chairman Henry Cheng and his counterpart at C C Land, Cheung Chung-kiu.
All have been a major presence in Evergrande's transactions, though over the past year, Xu has broadened the circle to bring in a clutch of other wealthy investors.
For instance, five investors joined Chinese Estates' Chan in January to buy $3.4 billion worth of shares in China Evergrande New Energy Vehicle Group at HK$27.30 a piece, promising not to sell for a year. The shares are trading now below HK$4.
The five were: Chen Hua, chairman of developer Kingkey Group; Wong Kwong-miu of Centralcon Investment; Liu Ming-hui of China Gas Holdings; Wang Kaiguo through his trading and investment company Heyirong International Trade; and Wang of Shenzhen Greenwoods.
Their investment was on top of several billions of dollars already sunk into the EV venture, which wants to take on Tesla but has yet to sell a single car. Some of Xu's friends also became anchor investors in the IPO of Evergrande Property Services Group.
The biggest support of all came almost exactly a year ago, when critics first started questioning if Evergrande could survive as it faced the need to repay 130 billion yuan in convertible debt after failing to secure a domestic listing for its core Hengda Real Estate as had been promised.
In September last year, investors who were owed the equivalent of two-thirds of the value of the convertible bonds agreed to waive their rights to demand repayment. By November almost all the remaining had taken a similar path. The investors included retail tycoon Zhang Jindong and Shenzhen Baoxin Investment, an entity then controlled by Gu Shaoming, a Communist Party member with interests in manufacturing and trade.
Evergrande had raised the funds in three rounds in 2017 to cut debt back then and promised to publicly float its Hengda unit or return the money.
Giving up his right to seek the 20 billion yuan contributed to Zhang losing control of the retail unit of his company Suning, which received a state bailout in July.
Xu's wealthy friends faced losses again after stepping in that same month, when Evergrande bonds started to tumble in value. CST Group, in which C C Land's Chung holds a stake, bought bonds worth $11 million in the open market. Based on current market prices, those holdings would now be worth $4.4 million.
Fitch Ratings late last month cut its credit rating on Evergrande from "CC" to "C," the last rung above default. The agency predicts bondholders may recover less than 10% of the sums owed.
China "will oversee one of the largest debt restructurings in history," said Benjamin Fanger, founder of distressed debt investor ShoreVest Partners. "Priority payment will go to homebuyers, suppliers, contractors, and employees."
In other words, not Xu and his inner circle of investors.
Beijing appears to have decided that it can protect the financial and property markets without having to support Xu and Evergrande. The People's Bank of China has flooded the market with liquidity to limit the fallout from its troubles. The central bank injected a net 460 billion yuan in short-term cash into the banking system in the five working days to Sept. 25.
"Evergrande is big, but not big or connected enough to be systemic," said Charles Chang, greater China lead for corporates at S&P Global Ratings. "As it is the largest, all that follows will be much smaller. It is, indeed, not the tip of an iceberg, but an iceberg itself -- one in a vast ocean that can withstand the turbulence it brings."
Additional reporting by Kenji Kawase in Hong Kong.