HONG KONG (REUTERS) – Cash-strapped China Evergrande Group said on Wednesday (Sept 29) it plans to sell a 9.99 billion yuan (S$2.1 billion) stake it owns in Shengjing Bank to a state-owned asset management company as it scrambles to raise funds.
Shengjing Bank had demanded that all net proceeds from the disposal be applied to settle the relevant financial liabilities of the group due to Shengjing Bank, Evergrande said.
That requirement suggests that Evergrande, which missed a bond interest payment last week, will be unable to use the funds for other purposes such as another interest payment to offshore bondholders of US$47.5 million (S$64.5 million) due on Wednesday.
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 per cent of the issued share capital of the bank, will be sold for 5.70 yuan apiece to Shenyang Shengjing Finance Investment Group, a state-owned enterprise involved in capital and asset management, Evergrande said in a filing to the Hong Kong bourse.
Shenyang Shengjing’s stake in the bank will be increased to 20.79 per cent after the deal to become the bank’s largest shareholder.
“The company’s liquidity issue has adversely affected Shengjing Bank in a material way,” Evergrande chairman Hui Ka Yan said in the statement.
“The introduction of the purchaser, being a state-owned enterprise, will help stabilise the operations of Shengjing Bank and at the same time, help increase and maintain the value of the 14.75 per cent interest in Shengjing Bank retained by the company.”
Beijing is prodding government-owned firms and state-backed property developers to purchase some of embattled Evergrande’s assets, people with knowledge of the matter told Reuters this week.
Once the face of China’s frenzied building boom, Evergrande has now become the face of a crackdown on developers’ debts that has spurred volatility in global markets and left large and small investors sweating their exposure.
With liabilities of US$305 billion, Evergrande has sparked concerns its problems could spread through China’s financial system and reverberate around the world – a worry that has eased as damage has so far been concentrated in the property sector.
On Monday, China’s central bank vowed to protect consumers exposed to the housing market and injected more cash into the banking system. The Shenzhen government began investigating Evergrande’s wealth management unit, the clearest sign yet the authorities could move to contain contagion risks.