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China Evergrande to sell $1.5 billion stake in Shengjing Bank to a state-owned enterprise

A Chinese state-owned business has agreed to pay $1.5 billion for the majority of China Evergrande Group’s EGRNF holding in a commercial bank, the latest evidence that the country’s authorities are attempting to assist the property behemoth with its financial woes.

Letter China Evergrande's CEO to employees leaked

Image Credits: Hindustan Times

Evergrande announced on Wednesday that one of its subsidiaries plans to sell nearly 20% of Shengjing Bank Co. 2066, based in Shenyang, Liaoning Province, to a company whose shareholders include the local branch of China’s State-Owned Assets Supervision and Administration Commission, as well as local and provincial governments.

The state-owned corporation would become the bank’s largest shareholder as a result of the deal.

Evergrande owns 34.5 percent of the regional lender, which is listed on the Hong Kong Stock Exchange, and which is invested five years ago. Following the sale, which requires a regulatory clearance, its share would shrink to 14.6 percent. The transaction was valued at around 9.99 billion yuan, or roughly $1.55 billion, according to the report.

According to a regulatory filing, Shengjing Bank has also asked that Evergrande utilize net revenues from the share sale to reimburse what the developer owes it.

The shares of the real estate company rose 15% in Hong Kong trading on Wednesday but are still down 79 percent for the year.

Evergrande, the world’s most indebted property developer, has struggled to acquire funds and satisfy its financial obligations in recent months after borrowing significantly from major and small investors, banks, suppliers, and house purchasers who pre-paid for apartments that the firm pledged to build. At the end of June, it had liabilities of $304 billion, including $88.5 billion in interest-bearing debt.

The firm missed a coupon payment on its US dollar notes last week, and another interest payment is due on Wednesday. Many of Evergrande’s projects have been put on hold, and the firm has been paying suppliers and contractors with incomplete apartment units.

Evergrande said in a regulatory filing on Wednesday that “its liquidity issue has materially harmed Shengjing Bank” and that a state-owned business buying the majority of its share will assist stabilise the lender’s operations.

According to Li Gen, chief executive of Beijing BG Capital Management Ltd., a credit-focused asset management, the local government had no alternative but to assist Evergrande in resolving its bank debts. Shengjing Bank would have had to incur large loan losses if the state-owned firm hadn’t stepped in to acquire some of Evergrande’s stock, which may have impacted its lending to other enterprises.

According to regulatory records, Shengjing Bank’s net profit after tax plummeted 77 percent last year to the equivalent of approximately $191 million. As the bank’s interest margins decreased and it upped its forecasts for loan losses during the Covid-19 epidemic, its first-half net profit after tax fell 63 percent to $162 million this year.

According to the bank’s interim report, the 24-year-old bank operates mostly in northern and northeastern China, with 18 branches in five provinces and dozens of subbranches in cities such as Beijing, Shanghai, and Tianjin.

According to regulatory records, Shengjing Bank’s net profit after tax plummeted 77 percent last year to the equivalent of approximately $191 million. As the bank’s interest margins decreased and it upped its forecasts for loan losses during the Covid-19 epidemic, its first-half net profit after tax fell 63 percent to $162 million this year.

According to the bank’s interim report, the 24-year-old bank operates mostly in northern and northeastern China, with 18 branches in five provinces and dozens of subbranches in cities such as Beijing, Shanghai, and Tianjin.

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