Chinese Evergrande sells a USD 1.5 billion stake in a bank to help settle debts

By guest author Lauren Hirsch from the New York Times. Alexandra Stevenson contributed reporting.

Caption courtesy by the New York Times

Evergrande, the embattled Chinese real estate developer, said Wednesday that it was selling a stake it held in Shengjing Bank for about USD 1.5 billion, with the proceeds going toward paying down its debts.

A Chinese state-owned enterprise is buying the stake, worth around 20 % in the commercial bank.

Evergrande, which has unpaid bills totalling more than USD 300 billion, missed an interest payment on a U.S. dollar bond last week. It had another USD 45 million payment on an international bond due Wednesday, September 29, 2021.

Evergrande has yet to address either payment publicly, and it has a 30-day grace period before a missed payment results in a default. Investors have been looking for signs that the Chinese government might step in to bail out the company.

In its filing announcing the Shengjing Bank stake sale, which was signed on Tuesday, Evergrande said its own liquidity problems had “adversely affected” the bank. Transferring ownership of the stake would help stabilise the bank, which would support the value of a stake of nearly 15% that Evergrande will keep.

As a condition of the sale, Shengjing Bank said, Evergrande will use all of the proceeds to settle its “relevant financial liabilities” with the bank. This flow of funds and the involvement of state-owned entities in the deal may indicate China’s willingness to limit the damage from Evergrande’s cash crunch.

“We believe the Chinese government is involved in some capacity to help resolve the situation,” Adrian Cheng, a director at Fitch Ratings, said on a call with reporters on Wednesday. The credit ratings agency downgraded Evergrande and some of its subsidiaries to C on Tuesday, which means that “a default or default-like process has begun.”

“We believe they are prioritising home buyers and ensuring the products get delivered,” Mr. Cheng said. Repaying suppliers would come next, followed by domestic bondholders and foreign bondholders.