Cash-strapped companies are scrambling to avoid defaulting on their debts. On Wednesday, China Evergrande Group announced its intention to sell a 9.99 billion yuan ($1.5 billion) interest in Shengjing Bank Co Ltd to a state-owned asset management firm.
Evergrande stated in an exchange filing that Shengjing Bank, one of the property developer's primary lenders, had demanded that the net proceeds from the sale be used to settle the property developer's financial responsibilities to the lender.
Evergrande, which skipped a bond interest payment last week, will be unable to use the cash for other purposes, including another $47.5 million interest payment to offshore bondholders due on Wednesday.
Investors are keeping a close eye on the payment deadline as the developer's next significant test in public markets. Evergrande's stock increased by as much as 15% on Wednesday.
Evergrande has quickly risen to the top of China's corporate pain list, teetering between a messy meltdown with far-reaching consequences, a planned collapse, and the less likely option of a bailout by Beijing.
Evergrande stated in a filing that the 1.75 billion shares, which constitute 19.93 percent of the bank's issued share capital, will be sold for 5.70 yuan each to Shenyang Shengjing Finance Investment Group Co Ltd, a state-owned firm that specializes in capital and asset management.
After the acquisition, Shenyang Shengjing's stake in the bank will be boosted to 20.79 percent, making it the bank's largest shareholder. Evergrande's 34.5 percent share in the bank would be cut to 14.75 percent.
“The company's liquidity issue has had a significant negative impact on Shengjing Bank,” Evergrande Chairman Hui Ka Yan stated in a statement.
“The introduction of the purchaser, as a state-owned enterprise, will assist in the stabilization of Shengjing Bank's operations while also assisting in the increase and maintenance of the company's 14.75 percent interest in Shengjing Bank.”
According to a report by brokerage CCB International last week citing news reports, the bank had 7 billion yuan in loans to Evergrande as of the first half of last year, making it the third-largest onshore lender to the cash-strapped corporation.
Since May, when financial news site Caixin revealed that China's top banking authority was probing related transactions worth more than 100 billion yuan ($15.45 billion) between Evergrande and the bank, the bank's financial health has been in the spotlight.
Evergrande declared in a statement on July 5 that its financial dealings with Shengjing met regulatory regulations.
Shenyang, China's northern metropolis, where Shengjing is situated, pushed local state-owned firms to raise their interests in the bank a few days following the announcement.
According to a statement released in July, the Shenyang administration valued improvements at Shengjing Bank and pledged to enhance the bank's Communist Party leadership in order to help it evolve into "a good bank."
People familiar with the situation told Reuters on Tuesday that Beijing is pressuring state-owned companies and state-backed property developers to buy some of China Evergrande Group's holdings.
Shengjing reported a net profit of 1.03 billion yuan in the first half of 2021, down 63.6 percent from the same period last year, owing to the impact of COVID-19, a drop in net interest income, and greater reserves for asset impairment losses due to "increased business operations uncertainty."
By the end of June, the bank's non-performing loan ratio had risen to 3.04 percent, well above the industry average of nearly 2%.
