Debt-laden Chinese real estate group Evergrande Group, which is having trouble paying its obligations, will sell part of its stake in Shengjing Regional Bank to state asset managers Shenyang Shengjing Finance Investment Group for 9.99 billion yuan ($1.5 billion). Reuters reports that Evergrande has another deadline to pay interest on the bonds to foreign creditors today.
Shengjing Bank is one of Evergrand’s major creditors. According to a statement to the exchange, the bank is requesting that all net proceeds from the sale be used to pay off debts owned by Evergrande.
Perhaps there will be nothing left for foreign creditors
This indicates that Evergrande will not be able to use the funds for other purposes. It is likely to again fail to meet its obligations to foreign creditors. Analysts point out that the sale of the bank’s shares actually constitutes financial assistance from the government.
Evergrande is set to pay $47.5 million to foreign bondholders today. The company’s deadline to pay $83.5 million in foreign bond interest expired last week. Evergrande’s total liabilities exceed $300 billion.
Evergrande has become one of the most volatile companies in China, vacillating between a chaotic meltdown with far-reaching consequences, a controlled collapse or the less likely prospect of bailing out Beijing.
Indirect state aid
Investors fear that the company’s collapse will not affect the Chinese financial system and that the negative effects may extend to the rest of the world.
Evergrande will sell 1.75 billion shares of Shengjing Bank, representing 19.93 percent of the bank’s share capital. Evergrande’s stake in the bank will drop to 14.75 percent after the sale. On the other hand, Shengyang Shengjing’s stake will rise to 20.79% and the company will become the bank’s largest shareholder. According to a report from brokerage firm CCB International, Evergrande borrowed seven billion yuan from Shengjing Bank.
Referring to informed sources, Reuters also said that Beijing is urging state-owned companies and state-sponsored developers to buy some of Evergrande’s assets.
Evergrande, formerly known as Hengda Group, was founded in 1996 by billionaire and businessman Huai Kha-len. He is also known as Xujiang. A real local giant grew out of a small local business, but mainly with the help of borrowed money.
According to the Evergrande Real Estate website, the company currently has more than 1,300 projects in more than 280 cities across China. Forbes magazine estimated Chuej’s personal assets at about $11 billion and ranked Evergrande among the world’s 500 largest companies, being ranked 122nd.
The group is also engaged in activities other than real estate construction. Her business includes the production of electric cars, food and beverages, and she also owns the media and football club.
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