Evergrande cuts off Shengjing Bank’s stake for US$1.55 billion as part of its attempts to unshackle itself from its liabilities worth US$305 billion. The distressed property developer agreed to sell 19.93% of Shengjing Bank for less than 10 billion yuan.
Evergrande will use the proceeds to repay the debt it owes to Shenjing Bank and will not receive any cash from this sale.
The Chinese real estate group faces a second offshore bond payment in a few weeks and has announced to sell a portion of its stake in a north-eastern China based bank to repay debt and help trim its liabilities.
A filing submitted to the Hong Kong exchange on Wednesday says that the developer sold its share to a state-owned enterprise Shenyang Shengjing Finance Investment Group. The sale will reduce Evergrande’s stake by 14.6% in the non-public shares of the lender as per the filing.
This transaction marks the latest asset sale by the property giant’s founder Hui Ka-yan as part of efforts to save his empire from collapsing, following the failure to pay several of its interest payments to contractors, suppliers and lenders this month. More deadlines on its local and offshore bond obligations are coming up.
Fitch Ratings slashed its long-term foreign-currency issuer rating for the Chinese developer and its subsidiaries to a “C”, or five levels below investment grade sinking it farther into junk territory. A “C” rating at Fitch reflects a company is “near default”.
Fitch issued a statement saying “The downgrades reflect that Evergrande is likely to have missed interest payment on its senior unsecured notes and entered the consequent 30-day grace period before non-payment constitutes an event of default,”.
Fitch has downgraded the Shenzhen home builder for the fourth time since June 22.
Manulife Investment Management released a report on Tuesday saying, “Although uncertainty still exists regarding this company’s fate, we believe the market’s base case (according to current pricing of its bonds) is likely a default,”. It added, “The nature of the potential default should then be a key driver of China’s real estate sector outlook, which should evolve over time.”
Evergrande has four interest payment deadlines on its dollar-denominated bonds, approaching in the following weeks as mentioned on the company’s recent interim reports. These payments include a 9.5% bond worth US$951 million that matures in March of 2024. Coupons on three bonds carrying a 30-day grace period and having a combined amount of US$3 billion are also due in the following month.
Rumors of the sale of Shengjing bank’s shares have been doing the rounds since July after Shengyang vice-mayor Gao Wei met with financial regulators and bank executives. He then encouraged local state-owned companies to increase their stakes.
The bank issued a statement in July in which Gao said that the city government valued reforms in Shengjing Bank and intended to work towards strengthening the Communist Party leadership in the bank in order to develop it into a good bank.
Previously, Evergrande sold a 1.9% stake in Shenging Bank for a price of 1 billion yuan by selling off assets between July and August of the current year.
Evergrande hired external financial advisers to help with its debt burden, as its cash resources depleted. The Chinese group along with other industry peers have been shut out of banks after they failed to conform with the “three red lines” rules imposed by the Chinese government in August of the previous year.
