HONG KONG—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 will be unable to use the funds for other purposes such as interest payments to offshore bondholders.
Evergrande missed paying bond interest due on Wednesday, two bondholders said, its second unpaid offshore debt obligation in a week, although the company on Thursday made a partial payment to some of its onshore investors.
The company, reeling under a debt pile of $305 billion, was due on Wednesday to make a $47.5 million bond interest payment on its 9.5 percent March 2024 dollar bond, after having missed $83.5 million in coupon payments last Thursday.
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 percent 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 percent after the deal to become the bank’s largest shareholder. Evergrande’s stake in the bank would be reduced to 14.75 percent from 34.5 percent.
As of the first half last year, the bank had 7 billion yuan in loans to Evergrande, accounting for 1.19 percent 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.
Shengjing reported a net profit of 1.03 billion yuan in the first half of 2021, down 63.6 percent 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”.
The bank’s non-performing loan ratio stood at 3.04 percent by the end-June, higher than the industry-wide average of nearly 2 percent.
