Evergrande sells stake in regional lender to shore up finances

China Evergrande Group is working to boost its finances and alleviate a liquidity crunch.   © Reuters

NARAYANAN SOMASUNDARAM, Nikkei Asia chief banking and financial correspondent | China

HONG KONG — China Evergrande Group, the world’s most indebted property developer, raised 1 billion yuan ($154 million) by selling a part of its stake in regional lender Shengjing Bank to units of a city government which is expected to further increase its holdings.

Shengjing Bank said in a statement on Wednesday that Evergrande sold 166.67 million shares representing a 1.9% stake at 6 yuan each to two state-backed units of northeastern Shenyang city. The bank’s board also resolved to support the local government to increase its stake gradually and “adjust the equity structure” to become a government bank.

The stake sale would shore up Evergrande’s finances and alleviate a liquidity crunch. It helped stem the sell-off in shares sparked by billionaire founder Xu Jiayin’s shock decision to step down as chairman of its onshore property unit, Hengda Real Estate, on Tuesday.

Shares in Evergrande, which has been selling assets and spinning off units to try and safely descend from a $301 billion debt pile, ended a volatile session 0.8% lower in Hong Kong. That extended losses for the year to 63%, while the group’s dollar bonds plumbed new lows. Shengjing Bank closed unchanged at HK$6.90 a share.

Evergrande said the change of chairman at its unit was “normal” and resulted from its unit’s inability to secure a mainland listing. The move did not involve any change in management or shareholding, it said.

The giant is a bellwether for China’s leveraged property sector, widely considered large enough to send ripples throughout the nation’s $50 trillion financial system. It is closely tracked by regulators, investors and rating agencies concerned about the potential for contagion should the company default on loans from banks and trusts.

The developer held 36% of Shengjing Bank before the latest sale valued at about $2.8 billion. However, the holding is under the regulatory scanner, according to media reports, andauthorities have tightened rules that govern the support extended by banks to their largest shareholders. 

Financial magazine Caixin said in May that authorities are probing Evergrande founder Xu’s relationship with Shengjing. It said the bank lent up to $20 billion to Evergrande via direct and indirect channels. 

Worries over the health of Evergrande have intensified in recent months after it missed payments on commercial bills to several suppliers. The company has been battling concerns over its finances since March of last year and has seen banks move to reduce exposure, a city in China suspend sales on projects and ratings agencies slash their evaluation of the company. 

Evergrande had 158.8 billion yuan in cash and cash equivalents at the end of 2020, against 335.5 billion yuan of borrowing due over the following 12 months, according to its last annual report. It has met all bond repayments for the year but faces over $6 billion in offshore maturities next year, with most of it due in the first half.

It has resorted to heavy discounts on properties and asset sales to get over the crisis. This month, it agreed to sell stakes in its internet unit HengTen Networks for $418 million, less than two months after offloading $570 million worth of shares in the company. In June, it also sold $386 million in property unit China Calxon Group, which followed a $2.1 billion sale of a 10% stake in its online home and car sales unit in March. 

Between March and December 2020, Evergrande raised almost $11.5 billion by selling its own equity as well as stakes in its property services, electric vehicle manufacturer and other units, filings show.

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