China Evergrande Group (3333. HK), on Wednesday, said that it plans to sell a 9.99 billion yuan ($1.5 billion) stake in Shengjing Bank Co Ltd to the state-owned asset management company.
Shengjing Bank Co Ltd, one of the main lenders to Evergrande, has demanded the Private real estate group to settle the proceedings of this transaction to settle the financial liability, Evergrande said in an exchange filing.
The requirement by the Shenyang-based private lender seems to default an interest payment to offshore bondholders of $47.5 million due on Wednesday, said Reuters in its report
The total liability of the firm is estimated to be $305 billion and it seems that the country’s authorities are helping the 2nd largest real estate group to settle its liability by buying the stakes.
Evergrande holds 34.5% in the Shengjing Bank Co Ltd, which it invested in five years ago and its holding would drop to 14.6% following the deal, according to The Wall Street Journals.
Evergrande, China’s biggest corporate stress, sold the 1.5 billion shares at 5.70 yuan apiece to Shenyang Shengjing Finance Investment Group Co Ltd, a state-owned enterprise involved in the capital.
“The company’s liquidity issue has adversely affected Shengjing Bank in a material way,”Evergrande Chairman Hui Ka Yan said in the statement.
Evergrande already missed a payment deadline on a dollar bond last week and the giant’s silence on the obligation of offshore payments due on Sept. 23 and Sept. 29 has left the global investors wondering if they have to suffer a huge loss when the 30-day grace period ends for coupon payment.
“We are in the wait-and-see phase at the moment. The creditors are organising themselves and people are trying to figure out how this falling knife might be caught,”said an advisor appointed by one of the offshore Evergrande bondholders.
“They failed to pay last week, I think they will probably fail to pay this one. That doesn’t mean necessarily they’re not going to pay … they’ve got the 30-day grace period,”said the advisor and declined to be named citing sensitivity of the issue.
The shares price of the real estate group rose 14.15% amid the crisis yet Evergrande has become the face of the global market volatility, leaving both large and small investors sweating.
The global market seems to promote the bears if any negative news by Evergrande goes live in the upcoming weeks.
Rating agency Fitch on Wednesday has also downgraded the real estate giant’s IDRs rating following the non-payment of offshore bond interests last week.
“We think that this disposal will help Evergrande address some of its upcoming liabilities, primarily those owed to Shengjing Bank, but will not be sufficient (to) fully address the company’s tight liquidity position,”analysts from CreditSights said in a report.
Meanwhile, Evergrande has been trying to sell its other assets including stakes in an electric vehicle business and a property-management services firm, as well as an office building in Hong Kong, said WSJ in a report.