By Donny Kwok and Anne Marie Roantree
HONG KONG (Reuters) – In an effort to avoid defaulting on its debts, cash-strapped China Evergrande Group on Wednesday announced plans to sell a 9.99 billion yuan (1.5 billion dollars) in Shengjing Bank Co Ltd to a state-owned asset management company.
Shengjing Bank, one of Evergrande’s main lenders, had demanded that all net proceeds from the divestiture be used to settle the property developer’s financial debts owed to the lender, Evergrande said in a swap case.
This requirement suggests that Evergrande, which missed a bond interest payment last week, will not be able to use the funds for other purposes, such as another interest payment to holders of $ 47.5million offshore bonds. of dollars due Wednesday.
The payment deadline is being closely watched by investors as the developer’s next big test in the public markets. Evergrande shares rose 15% on Wednesday.
Evergrande has quickly become the biggest headache for Chinese companies, as it oscillates between a disorderly collapse 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 each to Shenyang Shengjing Finance Investment Group Co Ltd, a public enterprise involved in the management of capital and investment. ‘assets, Evergrande said on file. .
Shenyang Shengjing’s stake in the bank will be increased to 20.79% after the agreement to become the bank’s largest shareholder. Evergrande’s stake in the bank would be reduced to 14.75% from 34.5%.
“The company’s liquidity problem has negatively affected Shengjing Bank significantly,” Evergrande Chairman Hui Ka Yan said in the statement.
“The introduction of the buyer, being a state-owned enterprise, will help stabilize the operations of Shengjing Bank and at the same time help to increase and maintain the value of the 14.75% stake in Shengjing Bank held. by the Society. “
In the first half of last year, the bank had 7 billion yuan in loans to Evergrande, representing 1.19% of the lender’s loan portfolio, according to a report by brokerage firm CCB International last week, citing articles. Press.
The financial health of Shengjing Bank has been in the spotlight since May, after financial media Caixin reported that China’s leading 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 that its financial activities with Shengjing complied with legal requirements.
Days after the announcement, the northern Chinese city of Shenyang, where Shengjing is based, encouraged local state-owned enterprises to increase their stakes in the bank.
The Shenyang government said it appreciated the reforms at the Shengjing Bank and would strengthen the Communist Party leadership in the bank to help it become “a good bank,” according to a statement released in July.
Beijing is pushing public companies and state-backed real estate developers to buy some of the struggling China Evergrande group’s assets, people with knowledge of the matter told Reuters on Tuesday.
Shengjing reported first half 2021 net profit of 1.03 billion yuan, down 63.6% from the previous year, citing the impact of COVID-19, lower net interest income and an increase in provisions for asset impairment due to “increased uncertainty in business operations”.
The bank’s bad debt rate stood at 3.04% at the end of June, above the industry average of nearly 2%.
This story corrects the 10th paragraph to say that the 7 billion yuan loan from the Shengjing Bank represents 1.19% of its own loan portfolio
(Reporting by Donny Kwok and Anne Marie Roantree; additional reporting by Cheng Leng in Beijing; Editing by Stephen Coates & Simon Cameron-Moore)