Caixin
Sep 29, 2021 09:45 PM
FINANCE

Evergrande to Raise $1.55 Billion From Sale of Stake in Regional Bank

A Shengjing Bank branch in Beijing’s Chaoyang district in June 2020. Photo: VCG
A Shengjing Bank branch in Beijing’s Chaoyang district in June 2020. Photo: VCG

Troubled China Evergrande Group will repay debt owed to Northeast China’s Shengjing Bank Co. Ltd. by selling a stake in the bank worth about 10 billion yuan ($1.55 billion), according to its Wednesday filing to the Hong Kong Stock Exchange.

A wholly owned subsidiary of the deeply indebted property giant reached an agreement with state-owned Shenyang Shengjing Finance Investment Group Co. Ltd. on Tuesday to offload a 19.93% stake in Shengjing Bank, the filing said.

Evergrande said all net proceeds from the transaction have been demanded by Shengjing Bank to repay liabilities owed by the company to the bank.

It remains unclear whether the bank’s complete exposure to Evergrande will be cleared by the share sale. The more than 100 billion yuan of Evergrande’s related-party transactions with Shengjing Bank under investigation by regulators include 13 billion yuan of debt owed to the lender in the forms of loans and bonds, Caixin previously revealed.

The deal came as Evergrande’s debt crisis attracted increasing global attention, with the market monitoring how it will affect China’s financial system and property industry and whether the government will step in. Shengjing Bank’s exposure is an example of how the Evergrande crisis is threatening to impact businesses across China that have deals with the nation’s most indebted property developer.

The Hong Kong-listed bank is headquartered in the city of Shenyang in Northeast China’s Liaoning province. Evergrande is the bank’s biggest shareholder and will retain a 14.57% stake after the deal.

Evergrande’s transactions worth over 100 billion yuan with Shengjing Bank have raised concerns, prompting the local government to try to weaken ties between the two.

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If the deal is closed, Shenyang Shengjing Finance Investment will become Shengjing Bank’s largest shareholder with a 20.79% stake, and Shenyang-based state-owned enterprises (SOEs) will hold a total stake of 29.54%, according to a Wednesday filing from the bank.

Evergrande’s liquidity problems have had a major negative impact on the bank, and the introduction of an SOE as the largest shareholder will help stabilize its operations, as well as protect the value of Evergrande’s remaining 14.57% stake, the developer said.

The share sale plan is subject to approvals from the top banking regulator, the state-owned assets watchdog and Shengjing Bank’s board of directors, according to the Evergrande filing.

Wang Jing, Chen Bo, Yu Ning, Zhu Liangtao, Wang Juanjuan, Zhou Wenmin and Denise Jia contributed to this report.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Lin Jinbing (jinbinglin@caixin.com)

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