(Yicai) June 5 -- The founder of Zhufaner has acknowledged that the once high-flying Chinese home renovation startup is in financial difficulty, after a series of social media posts by homeowners claimed that it had halted work on hundreds of projects.

Zhufaner’s funding chain has collapsed, Liu Xianran said during a recent meeting with government officials and industry associations, attributing the firm’s cash-flow crisis mainly to the nationwide introduction of home appliance trade-in subsidies at the end of last year.

About 300 homeowners in Beijing and Shanghai reported the suspension of projects managed by Zhufaner at the end of last month, Yicai learned from WeChat groups. Most had already paid between 40 percent and 70 percent of the cost, with some even handing over 95 percent up front.

Zhufaner’s group-buying business had been purchasing home appliances from manufacturers at prices 10 percent to 15 percent lower than those listed on JD.Com and Tmall. But once the trade-in subsidies were introduced, consumers could get discounts of 25 percent to 30 percent, resulting in the business losing CNY100 million (USD13.9 million) over the following six months, Liu said.

Many of Zhufaner’s clients have expressed skepticism and demanded that the Beijing-based company publicly disclose detailed financial accounts related to homeowners’ advance payments and renovation loans. They want clarity on the flow of upfront funds, the use of renovation loans, the company’s asset‐liability breakdown, and records of executive compensation.

There are claims that Zhufaner’s management team misappropriated funds for other businesses and suffered losses, leading to the cash-flow crisis, according to one of its suppliers of renovation materials.

Zhufaner has two main businesses, namely the community group-buying business for home furnishings and appliances and a whole-package renovation business, which is active only in Beijing and Shanghai, Yicai learned.

The whole-package business is profitable, but the management has used some of its funds to cover losses from the group-buying operation, an employee told Yicai. The company has also been late paying staff social security contributions, the staffer added.

Numerous homeowners discovered that their projects had ground to a halt in late May. The foreman told them that Zhufaner was behind on paying wages, and suppliers had stopped making deliveries due to outstanding payments.  

Zhufaner was founded in 2015 by four graduates of China’s prestigious Tsinghua University. It has raised CNY320 million (USD44.5 million) from investors, with the most recent funding round wrapped up in March last year, when Mejour Investment Management injected CNY100 million.

Editor: Futura Costaglione