Stock Groups

to sell stake in bank, faces bond payment

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Residences at China Evergrande Group’s Life in Venice real estate and tourism development in Qidong, Jiangsu province, China, on Tuesday, Sept. 21, 2021.

Qilai Shen – Bloomberg | Bloomberg | Getty Images

Ahead of another interest payment deadline, Chinese developer Evergrande announced it will be selling off a $1.5 billion (9.99 billion yuan) stake in Shengjing Bank to a state-owned asset management firm.

The property giant, which is buckling under the weight of more than $300 billion in debt, has been struggling to raise funds as it faces a $47.5 million bond interest payment deadline on Wednesday. The bankrupt real estate company owes money to suppliers and banks.

Evergrande disclosed in a Wednesday morning filing to Hong Kong’s exchange that it reached an agreement to transfer 1.75 million shares of Shengjing Bank stock to Shenyang Shengjing Finance Investment Group for 5.70 yuan per unit. These shares represent 19.93% the bank’s issued share capital.

Evergrande previously had already sold 1 billion Yuan worth shares in Shengjing Bank.

Evergrande stated in the statement that Shengjing Bank’s liquidity issues have “adversely impacted” it “in a material manner.” Introducing the purchaser – the state-owned Shenyang Shengjing Finance Investment Group – will “stabilise the operations” of the bank, Evergrande said.

Evergrande’s Hong Kong shares rose almost 10% on Wednesday morning in the early trades.

Another bond interest payment due Wednesday

The troubles of Evergrande came to the fore after it warned twice in September that it may default on its debts. Fears over whether the firm would default roiled global markets – although U.S. stocks rebounded by the end of last week.

The world’s most indebted real estate company already missed one key $83.5 million coupon payment last week, on an offshore March 2022, $2 billion bond. Commonly, foreign investors hold dollars bonds.

Evergrande has yet to make an announcement about the last-week’s payment.

If the company fails to pay the required payment within 30 days, it is technically in default.

Markets will closely monitor the situation to determine if the firm can make its $47.5million interest payment due Wednesday. The $1 billion bond is scheduled for maturity in March 2024.

Evergrande bonds are being resold by investors and yields for this seven-year bond rose to 90% after a drop in prices. This is compared with 14% at the beginning of 2017. The yields are moving in opposite directions to the prices.

Evergrande is responsible for interest payments throughout the year. These are due in December, October and November.

Analysts have said the firm may prioritize domestic investors, who are the main holders of onshore bonds – over foreign investors, who mostly hold the offshore debt.

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