(Yicai) Aug. 8 -- Chinese tea firm Fan Cha Holdings has defaulted on wealth management products tied to tea raw materials involving billions of Chinese yuan, equal to hundreds of millions of US dollars.

Fan Cha's default is likely the largest one of a tea brand on the Fangcun Tea Market in Guangzhou, where the company is headquartered, according to estimations.

Yicai visited Fan Cha's research and development center in Guangdong province yesterday but found it, as well as the nearby franchise stores, closed.

An individual who became a Fan Cha dealer last October was unable to redeem a WMP worth CNY1.4 billion (USD195.2 million) on July 20, according to a document the person filed to a local securities authority.

A woman operating a Fan Cha franchised store recently said she invested CNY10 million (USD1.4 million) in the company's WMPs but could not redeem the money. A customer who invested CNY1.6 million (USD223,050) in some of Fan Cha's WMPs also claims to be in a similar situation.

Dealers and franchisees are pointing the finger at Fan Cha for their issues with WMPs, but some customers believe the fault is mainly of dealers and franchisees. Meanwhile, Fan Cha is trying to play it off.

On Aug. 4, Fan Cha announced a WMP redemption scheme, allowing buyers to redeem only 5 percent and obtain the remaining 95 percent as new products of the same value. After the initial scheme failed to satisfy buyers, the company offered three other options: converting debts into equities, getting goods as compensation, and bankruptcy and liquidation. No consensus has been reached so far.

Budded in 2015 and officially launched at the end of 2021, Fan Cha owns over 500 physical stores, according to the firm's website.

Fan Cha has implemented a business scheme that many deemed illegal. According to the scheme, dealers organized customers to buy the WMP issued by Fan Cha, and trading platforms pledged to repurchase the products before maturity and pay hefty interests in return.

One of the customers said that when he heard about the scheme in 2022, they all thought it was a Ponzi scheme. However, as more and more people claimed to have made a fortune out of it, he started believing it could really lead to success.

Someone allegedly managed to buy a Bentley car in just one month of work as part of Fan Cha's scheme. Another person involved claimed in May last year that they made CNY14 million in only one year.

One of the dealers explained that Fan Cha's WMPs had a return on investment of between 8 percent and 9 percent last year, which later rose to 15 percent to 20 percent. On Aug. 2, two days before the redemption scheme announcement, the company even introduced a new WMP with an ROI of more than 100 percent.

Editors: Zhang Yushuo, Futura Costaglione