China Evergrande to Sell Bank Stake to State-Owned Firm for $1.5 Billion

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Developer to reduce stake in Shengjing Bank to below 15%

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Evergrande owns 34.5% of the Hong Kong-listed regional lender, which it invested in five years ago. Post the deal, its stake will come down to 14.6 per cent, which needs regulatory approval. It said the sale was valued at about 9.99 billion yuan, equivalent to about $1.55 billion.

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According to a regulatory filing, Shengjing Bank has also demanded that Evergrande use the net proceeds from the stake sale to pay off developer dues.

The stock of the real estate group jumped 10% in Hong Kong by noon, but remains down more than 80% for the year.

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Evergrande, the world’s most indebted property developer, has been struggling to raise cash and meet its financial obligations in recent months after heavy borrowings from investors big and small, banks, suppliers and home buyers who have raised funds for the company. Had paid in advance for the promised apartment. It reported the equivalent of $304 billion in liabilities at the end of June, which includes $88.5 billion in interest-bearing debt.

Last week, the company missed coupon payments on its US dollar bonds, and another interest payment is coming Wednesday.

Construction on many of Evergrande’s developments has been halted and the company is paying some suppliers and contractors with unfinished apartment units.

Evergrande said in a regulatory filing on Wednesday that “its liquidity issues have materially adversely affected Shengjing Bank” and that the purchase of a majority of its stake by the state-owned enterprise would help stabilize the lender’s operations. will gain help in.

The local government had little choice but to help resolve its liabilities with the bank, said Li Gen, chief executive of Beijing BG Capital Management Ltd., a credit-focused asset manager. If the state-owned enterprise had not moved to buy some of Evergrande’s stake, Shengjing Bank would have had to book significant credit losses, which could affect its loans to other businesses.

Shengjing Bank’s net profit after tax fell 77% last year to nearly $191 million, according to the lender’s regulatory filing. This year, its first half net profit after tax fell 63% to $162 million, as the bank’s interest margin shrank and it raised its expectations of loan losses during the COVID-19 pandemic.

The 24-year-old bank, whose business is mostly in northern and northeastern China, has 18 branches in five provinces and dozens of sub-branches in cities including Beijing, Shanghai and Tianjin, according to its interim report. It provides deposit and lending services to individuals and companies, and has lent money to Evergrande in the past, its regulatory filings show.

Shengjing Bank’s president, Qiu Huofa, previously worked at Evergrande as executive vice president, as did the bank’s chief approval officer. It also has other Evergrande representatives on its board who were appointed after the developer became its controlling shareholder.

In July, a Chinese credit-rating company downgraded Shengjing Bank from AAA to AA+. China Lianhe Credit Rating Co said the lender was facing “certain customer and industry concentration risks,” and that the deterioration in credit asset quality was hurting its profits.

According to bank disclosures, about 18.2% of Shengjing’s outstanding loans at the end of last year were to the real-estate and construction industries, up from 12.8% in 2018. The rating company said Shengjing’s exposure to a group of companies – who did not wish to be named – exceeded a regulatory threshold.

The buyer of the bank’s shares is Shenyang Shengjing Finance Investment Group Co, a company involved in industrial investment, capital management and asset management, Evergrande said on Wednesday.

Evergrande is looking to sell other assets, including an electric-vehicle business and a property-management-services firm, as well as an office building in Hong Kong.

Analysts at CreditSights said in a report, “We think this settlement will help Evergrande address some of its upcoming liabilities, primarily those owed to Shengjing Bank, but fully address the company’s tight liquidity position.” Wouldn’t be enough to do.”

Serena Ng at [email protected] and Xie Yu at [email protected]

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