Evergrande to Raise $1.5 Billion by Selling Bank Stake to State-Owned Asset Management Firm

Scrambling to avoid defaulting on its debts, cash-strapped China Evergrande Group on Wednesday announced it would sell off a 9.99 billion yuan ($1.5 billion) stake in Shengjing Bank to Shenyang Shengjing Finance Investment Group, at 5.70 yuan per share. Those shares amount to 19.93% of the issued share capital of the bank.

Evergrande acquired its 36.4% stake in Shengjing Bank, a commercial bank founded in 1997, in 2016. Data from the announcement showed that in 2019, 2020 and the first half of 2021, Shengjing Bank’s net profit after tax was 5.438 billion yuan, 1.231 billion yuan and 1.046 billion yuan respectively.

The financial health of Shengjing Bank has come under the spotlight since May, after financial news outlet Caixin reported that China’s top banking watchdog was investigating transactions worth more than 100 billion yuan between Evergrande and the bank. On July 5, Evergrande said in a statement its financial business with Shengjing complied with legal requirements.

To deal with the debt crisis, Evergrande earlier reduced its stake in the bank by 1.9 percent stake in order to raise 1 billion yuan, yet still remaining the bank’s largest shareholder. After the most recent sale, Evergrande’s stake in Shengjing Bank has been reduced to 14.57%, making it the second largest shareholder of the bank.

Upon completion of the share transfer, Shenyang Shengjing Finance Investment Group will hold 20.79% of the total issued shares of Shengjing Bank and become its largest shareholder. The state-owned enterprise engages in industrial investment, capital management, asset management and other businesses. The State-owned Assets Supervision and Administration Commission of Shenyang Municipal People’s Government is its major shareholder.

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“The introduction of the purchaser, being a state-owned enterprise, will help stabilise the operations of Shengjing Bank and, at the same time, help increase and maintain the value of the 14.75% interest in Shengjing Bank retained by the company,” Evergrande said in its filing.

Shengjing Bank, one of the main lenders to Evergrande, had demanded that all net proceeds from the disposal be used to settle the financial liabilities of the property developer due to the lender, the filing showed.