Evergrande sells $1.5 billion stake in the bank to help settle debt.
Embattled Chinese real estate developer Evergrande said on Wednesday it is selling its stake in Shengjing Bank for about $1.5 billion, with proceeds going toward paying down its debt.
A Chinese state-owned enterprise is buying a nearly 20 percent stake in the commercial bank.
The move comes as Evergrande, which has more than $300 billion in outstanding bills, missed interest payments on US dollar bonds last week. It has another $45 million payout on international bonds due Wednesday.
Evergrande hasn’t publicly addressed any payments yet, and it has a 30-day grace period before a default can result in a missed payment. Investors are looking for signs that the Chinese government may be taking steps to bail out the company.
In its filing announcing the stake sale of Shengjing Bank, which was signed on Tuesday, Evergrande said its own liquidity problems had “adversely affected” the bank. Transferring ownership of the stake will help stabilize the bank, which will support the stake value of around 15 percent that Evergrande will hold.
And as a condition of the sale, Shengjing Bank said Evergrande would use all proceeds to settle its “relevant financial liabilities” with the bank. This influx of funds and the involvement of state-owned entities in the deal may indicate China’s willingness to limit losses 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, told reporters on Wednesday. The credit rating agency downgraded Evergrande and some of its subsidiaries to “C” on Tuesday, meaning “a default or default-like process has begun.”
“We believe they are prioritizing homebuyers and making sure products are delivered,” Mr. Cheng said. Paying suppliers would come next, followed by domestic bondholders and foreign bondholders.
alexandra stevenson contribution reporting
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