Evergrande has raised Rmb10 billion ($2.1b) by selling part of its stake in a bank to a state-owned investment group, as the heavily indebted Chinese property developer battles for survival amid mounting pressure over bond repayment deadlines.
The company said on Wednesday it had sold a 20 per cent stake in Shengjing Bank, based in the northern city of Shenyang, to Shenyang Shengjing Finance Investment Group, which is owned by local authorities.
Evergrande will retain a 15 per cent stake in Shengjing Bank, which is “demanding” that the net proceeds from the sale be used to settle liabilities the group owes to it, according to a regulatory filing.
The sale amount is dwarfed by Evergrande’s total liabilities of more than US$300b ($435.7b). The world’s most indebted property developer, the company is engulfed in a deepening liquidity crisis after it missed an US$83.5 million interest payment on a dollar-denominated bond last week.
The company’s woes have triggered global concerns over the health of China’s real estate sector, a longstanding driver of the country’s economy.
Evergrande, which last month warned of the risk of default, has yet to make any announcement regarding the payment. A separate interest payment on another dollar-denominated bond is due today.
Evergrande said in a filing on Wednesday that its liquidity issue had “adversely affected” the bank and added that the buyer, “being a state-owned enterprise, will help stabilise” its operations.
The inclusion of a government body in the process will add to anticipation of official involvement in what could become the biggest debt restructuring in Chinese history.
Evergrande’s fate poses an immense political challenge to local and central governments, given it has nearly 800 projects across hundreds of cities where many citizens have already paid for unfinished apartments.
Local authorities have already inserted themselves into part of Evergrande’s operations to take control of sales revenue. In a district of the southern city of Guangzhou, a local government department said last week that revenues at an Evergrande subsidiary must be put into a government account so that “homebuyers’ interest can be protected”. Another housing bureau in the nearby city of Zhuhai asked sales proceeds to be put into a government account.
Chinese developers often sell residential properties to homebuyers before completion, allowing the cash to be invested into new land purchases which provide crucial revenue for local governments. Sales of both new homes and land across China have slumped over recent weeks, in a sign that government measures designed to constrain borrowing by property developers are weighing on the sector.
Last week’s missed interest payment due on a bond maturing next year was the most prominent deadline yet for a company which is one of the biggest borrowers on Asian corporate bond markets. The company has US$20b of dollar-denominated bonds outstanding.
Offshore bondholders have hired law firm Kirkland & Ellis and Moelis, the boutique investment bank, to advise ahead of a potential restructuring.
Retail investors in wealth management products linked to Evergrande this month descended on the company’s headquarters in Shenzhen to demand their money back.
The company’s shares, which have been highly volatile throughout the crisis, rose 10 per cent following the announcement. Bonds maturing next year, on which the payment was missed, were trading at 26 cents on the dollar this week.
Written by: Thomas Hale and Edward White
© Financial Times
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