Here is why Evergrande is selling its stake in Shengjing Bank

on Sep 29, 2021
  • Evergrande selling 19.93% stake held in Shengjing Bank
  • The real estate developer to use proceeds of sale to settle $47.5 million interest payment
  • Evergrande defaulted on a vital payment last week

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Embattled Chinese property developer Evergrande (HKG: 03333) is planning to sell a $1.5 billion interest in Shengjing Bank (HKG: 02066) ahead of its interest payment deadline. The real estate giants will sell the stake to a state-owned property management company.

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Evergrande is mired with a debt of over $300 billion, and it has been unable to raise cash to settle the $47.5 million bond interest payment due on Wednesday. The troubled property developer also owes suppliers and banks money.

Evergrande selling 19.93% stake in Shenjing Bank

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In a filing to the Hong Kong exchange, the company stated that it has agreed to sell 1.75 billion shares in Shengjing Bank to the Shenyang Shengjing Finance Investment Group at 5.70 yuan a share. The stake accounts for 19.93% of the bank’s issued shares. Earlier this year, the developer sold 1 billion yuan worth of Shengjing Bank shares.

Evergrande stated in a statement that its liquidity issues have so far “adversely affected” Shengjing Bank materially. According to Evergrande, the introduction of the financial investment firm will help in stabilizing bank operations. 

Notably, the company continues to sell holdings in other properties to alleviate its liquidity constraint.  To help pay off some of its debts, the company has already has sold some property units to contractors and suppliers. According to its most recent financial statement, the company’s outstanding obligations were 25.17 billion yuan ($3.8 billion) as of August 27, 2021.

Evergrande’s problems became public after it warned twice in September that it would default on its debts. Fears that the company would fail roiled markets globally, but US stocks had recovered by the end of last week.

Evergrande missed payment last week

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Last Monday, the indebted developer missed a crucial $83.5 million interest payment on a dollar-denominated $2 billion five-year bond due in March 2022. Foreign investors are the most common holders of dollar bonds.

Surprisingly, Evergrande has not commented on the missed payment so far. But, the firm will not have legally defaulted unless the company doesn’t make the payment within 30 days of the expected date.

Markets are waiting to see if Evergrande will make its subsequent interest payment of $47 million due on Wednesday for a $1 billion bond due on March 2024.

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