EVERGRANDE’S SALE OF a 20% stake in Shengjing Bank to an agency of Shenyang city’s government provides a snapshot of how the beleaguered property group is being bailed out.
Shenyang Shengjing Finance Investment Group will pay 10 billion yuan ($1.55 billion) for the stake, but the proceeds will be used to offset Evergrande’s liabilities to the bank. Evergrande retains a 14.6% stake in the bank.
Cash-strapped Evergrande has already shed various assets, including 25 billion yuan worth of property and an earlier 2% stake in Shengjing Bank that raised 1 billion yuan.
More such asset sales are likely, as authorities actively nudge the restructuring of the group’s debt. They have moved to limit contagion from Evergrande spreading after the company missed several interest payments this month to lenders, contractors and suppliers, as well as an $83.5 million coupon payment due on a dollar-denominated offshore bond and concocted a palliative deal with its onshore bondholders.
More deadlines are approaching on its local and offshore bond obligations, including a $45 million bond payment due today, on which Evergrande is likely to invoke its 30-day grace period to make payment. The rating agency Fitch cuts its rating for Evergrande to a ‘C’ today, which signifies a company in ‘near default’. It is Fitch’s fourth downgrade of the group since June 22.
Evergrande has outstanding international debts of about $20 billion and total debt of around $300 billion. More than 100 Chinese banks have lent money to Evergrande, and 1.4 million new housing units have been sold but not completed.
The restructuring will prioritise homebuyers, then contractors and suppliers owed money, followed by domestic investors in Evergrande’s financial products. Foreign investors will be at the back of the queue.