Chinese state-owned company has reached agreement to buy most of China Evergrande Group‘s
stake in a commercial bank for $ 1.5 billion, the latest sign that the country’s authorities are trying to help the real estate giant solve some of its financial problems.
Evergrande announced on Wednesday that one of its units plans to sell nearly 20% of Shengjing Bank Co.
, which is based in Shenyang City, Liaoning Province, to a company whose owners include the local branch of the China Commission for Supervision and Administration of State-owned Assets as well as local and provincial governments . The transaction would make the crown corporation the largest shareholder in the bank.
Evergrande owns 34.5% of the Hong Kong-listed regional lender, in which it invested five years ago. Its stake would drop to 14.6% following the transaction, which requires regulatory approval. He said the sale was valued at around 9.99 billion yuan, equivalent to about 1.55 billion dollars.
The Shengjing Bank also demanded that Evergrande use the net proceeds from the sale of the stake to repay what the developer owes it, according to a regulatory filing.
The action of the real estate conglomerate jumped 10% at noon in Hong Kong but remains down more than 80% over the year.
Evergrande, the world’s most indebted real estate developer, has struggled in recent months to raise funds and meet financial obligations after borrowing heavily from large and small investors, banks, suppliers and home buyers who have paid in advance the apartments that the company has promised to build. It declared the equivalent of $ 304 billion in liabilities at the end of June, including $ 88.5 billion in interest-bearing debt.
Last week, the company missed a coupon payment on its US dollar bonds, and it has another interest payment due on Wednesday.
Construction on many Evergrande developments was halted and the company paid some suppliers and contractors with unfinished apartments.
Evergrande said in a regulatory filing Wednesday that “its liquidity problem has adversely affected Shengjing Bank significantly” and that the purchase of most of its stake by a state-owned company would help stabilize the lender’s operations.
The local government had no choice but to help Evergrande settle its debts with the bank, said Li Gen, managing director of Beijing BG Capital Management Ltd., a credit-focused asset manager. If the state-owned company had not stepped in to buy out part of Evergrande’s stake, Shengjing Bank would likely have to record significant loan losses, which could affect its loans to other companies.
Shengjing Bank’s after-tax net profit fell 77% last year to the equivalent of about $ 191 million, according to the lender’s regulatory documents. This year, its first-half after-tax net income fell 63% to $ 162 million, as the bank’s interest margins narrowed and it raised its expectations for loan losses during the pandemic. of Covid-19.
The 24-year-old bank, which operates primarily in northern and northeastern China, has 18 branches in five provinces and dozens of branches in cities like Beijing, Shanghai and Tianjin, according to its interim report. It provides deposit and loan services to individuals and businesses and has previously lent money to Evergrande, according to its regulatory documents.
Shengjing Bank chairman Qiu Huofa was previously executive vice president of Evergrande, as was the bank’s approval manager. Its board of directors also has other representatives of Evergrande who were appointed after the developer became its majority shareholder.
In July, a Chinese rating company downgraded Shengjing Bank’s rating from AAA to AA +. China Lianhe Credit Rating Co. said the lender “faces certain risks of customer and industry concentration” and that the decline in credit asset quality is hurting its profits.
About 18.2% of Shengjing’s outstanding loans at the end of last year were for the real estate and construction sectors, up from 12.8% in 2018, according to the bank’s information. The rating company said Shengjing’s exposure to a group of companies – which it did not name – exceeded a regulatory limit.
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 Wednesday.
Evergrande attempted to sell other assets, including stakes in an electric vehicle company and a property management services company, as well as an office building in Hong Kong.
“We believe this divestiture will help Evergrande meet some of its future liabilities, primarily those owed to Shengjing Bank, but will not be sufficient (to) fully meet the company’s tight liquidity situation,” said CreditSights analysts in a report.
—PR Venkat contributed to this article.
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