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China Evergrande to sell $1.5 billion stake in Shengjing Bank to state firm

Published 09/28/2021, 08:26 PM
Updated 09/29/2021, 08:51 AM
© Reuters. FILE PHOTO: Cranes stand at a construction site near the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021. REUTERS/Aly Song

By Donny Kwok and Anne Marie Roantree

HONG KONG (Reuters) - Scrambling to avoid defaulting on its debts, cash-strapped China Evergrande Group said on Wednesday it plans to sell a 9.99 billion yuan ($1.5 billion) stake in Shengjing Bank Co Ltd to a state-owned asset management company.

Shengjing Bank, one of the main lenders to Evergrande, had demanded that all net proceeds from the disposal be used to settle the financial liabilities of the property developer due to the lender, Evergrande said in an exchange filing.

That requirement suggests that Evergrande, which missed a bond interest payment last week, will be unable to use the funds for other purposes such as another interest payment to offshore bondholders of $47.5 million due on Wednesday.

The payment deadline is being closely watched by investors as the developer's next big test in public markets. Shares of Evergrande rose as much as 15% on Wednesday.

Evergrande has rapidly become China's biggest corporate headache as it teeters between a messy meltdown with far-reaching impacts, a managed collapse or the less likely prospect of a bailout by Beijing.

The 1.75 billion shares, representing 19.93% of the issued share capital of the bank, will be sold for 5.70 yuan apiece to Shenyang Shengjing Finance Investment Group Co Ltd, a state-owned enterprise involved in capital and asset management, Evergrande said in its filing.

Shenyang Shengjing's stake in the bank will be increased to 20.79% after the deal to become the bank's largest shareholder. Evergrande's stake in the bank would be reduced to 14.75% from 34.5%.

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"The company's liquidity issue has adversely affected Shengjing Bank in a material way," Evergrande Chairman Hui Ka Yan said in the statement.

"The introduction of the purchaser, being a state-owned enterprise, will help stabilise the operations of Shengjing Bank and at the same time, help increase and maintain the value of the 14.75% interest in Shengjing Bank retained by the company."

As of the first half last year, the bank had 7 billion yuan in loans to Evergrande, accounting for 1.19% of the lender's loan book, according to a report by brokerage CCB International last week, citing news reports.

The financial health of Shengjing Bank has come under the spotlight since May, after financial news outlet Caixin reported that China's top banking watchdog was investigating connected transactions worth more than 100 billion yuan ($15.45 billion) between Evergrande and the bank.

On July 5, Evergrande said in a statement its financial business with Shengjing complied with legal requirements.

Days after that announcement, China's northern city of Shenyang, where Shengjing is based, encouraged local state-owned companies to increase stakes in the bank.

The Shenyang government said it valued reforms at Shengjing Bank and would strengthen the Communist Party leadership in the bank to help it develop into "a good bank," according to a statement in July.

Beijing is prodding government-owned firms and state-backed property developers to purchase some of embattled China Evergrande Group's assets, people with knowledge of the matter told Reuters on Tuesday.

Shengjing reported a net profit of 1.03 billion yuan in the first half of 2021, down 63.6% from a year earlier, citing the impact of COVID-19, a decline in net interest income and increased provisions for impairment losses of assets due to "increased uncertainty of business operations".

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The bank's non-performing loan ratio stood at 3.04% by the end-June, higher than the industry-wide average of nearly 2%.

This story corrects 10th paragraph to say Shengjing Bank's 7 billion yuan loan accounts for 1.19% of its own loan book

Latest comments

When enron merrill lehman madoff failed, the US govt did not even give a damn to domestic and foreign investors!
That's Xitler's plan.  Take care of China and China alone and leave all the investors outside of China to die.
 You have spilled so much nonsense.  I don't understand Singaporeans?  My boyfriend runs a business in Singapore for years.  Oh yeah, forgot to mention, my cousin has been a member of the National Committee of the Chinese People's Political Consultative Conference since 2008.  Be sure you know who you are talking to, LOL! China is oh so good.  Why live in a small island like Singapore anyway.  Please move back to China, and please remember to donate your asset to the government so that everybody can get rich together.  You are so full of anger, you deserve to be ignored.  What you don't understand is, Lehman might have a bigger debt, but at that time, the world is not so interlinked together, especially now that China is involved and they leveraged on each other.
Like the CCP are not racists, if you can turn a blind eye of how the CCP has killed many HongKongers and Xinjiang,  Yeah!  Your points are oh so invalid.  Why is it so racist to mention 50 cent?  It's a fact there are tons and tons of 50 cent factories in China.  The CCP has been calling them water army all along.
Ask any Indian on Twitter if the CCP Chinese are racists, they will tell you the truth.  The kind of garbage those 50 cent spilled on the Indians are oh so racist, it's not even funny.
what would be the direction of the market ?
China will make sure domestic investors are made whole, while the offshore investors get the leftovers if any actually left.
Another 298.5 B to go....
You can bet the offshore investors will get nothing. China has no security laws that treat all investors equally like other countries.
Commendable that the Chinese Government is assisting Evergrande in its efforts to monetize it's assets
Doesn't mean they will repay any of the loans outside of China.
they are not gonna bailout they will liqudate all their assets and share among the lenders (which means debt will partially paid) which is the right way to go with out incentivizing corruption anyway, lenders should pay the price of their own risk taking not everybody and next time people will invest more wisely knowing that goverment is not their sugar daddy.
also if they do bailout they know that they will become toy of global investors like US become circle of boom bust will never end
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