Evergrande has raised Rmb10 billion ($ 1.5 billion) by selling part of its stake in a bank to a state-owned investment group, while the heavily indebted property developer is struggling to survive amid mounting pressure on installment limits.
The company said on Wednesday it had sold a 20 percent stake in Shengjing Bank, in the northern city of Shenyang, to Shenyang Shengjing Finance Investment Group, which is owned by local authorities.
Evergrande will retain a 15 percent stake in Shengjing Bank, which ‘demands’ that the net proceeds from the sale be used to settle the obligations the group owes it, according to a regulatory report.
The sales amount is dwarfed by Evergrande’s total liabilities of more than $ 300 billion. The company is the world’s most guilty real estate developer and is then engulfed in a deepening liquidity crisis missed interest of $ 83.5 million on a dollar-denominated bond last week.
The misery of the company has caused worldwide concern about the health of the real estate sector in China, a long-time driver of the country’s economy.
Evergrande, which warned last month about the risk of default, has yet to make any announcement about the payment. A separate interest payment on another dollar-denominated mortgage is payable today.
Evergrande said in an application on Wednesday that its liquidity issue had a detrimental effect on the bank, adding that the buyer, a state-owned company, would help stabilize its operations.
The inclusion of a government body in the process will contribute to the anticipation of official involvement in what it may become largest debt restructuring in Chinese history.
Evergrande’s fate poses a huge political challenge to local and central governments, as it has nearly 800 projects in hundreds of cities where many citizens have already paid for unfinished apartments.
Local authorities have self inserted part of Evergrande’s operations to take control of sales revenue. In a district in the southern city of Guangzhou, a local government department said last week that the income of an Evergrande subsidiary should be placed in a government account so that “homebuyers’ interests can be protected”. Another housing agency in the nearby city of Zhuhai requested that the sales proceeds be brought into a state account.
Chinese developers often sell homes to home buyers before completion, so the cash can be invested in new land purchases that provide a crucial income for local governments. Sales of new homes and land in China have fallen in recent weeks, a sign that government measures aimed at curbing loans by property developers are making the sector heavy.
Last week’s missed interest payment on a mortgage that expires next year was the most prominent deadline yet for a company that is one of the largest lenders in the markets in Asian corporate bonds. The company has $ 20 billion in outstanding bonds in dollars.
Foreign mortgage holders have appointed law firm Kirkland & Ellis and Moelis, the boutique investment bank, to advise on possible restructuring.
Retail investors in wealth management products linked to Evergrande descended on the company’s headquarters in Shenzhen this month to reclaim their money.
The shares of the company, which was highly volatile during the crisis, rose by 10% after the announcement. Bonds maturing next year, on which payment was missed, traded at 26 cents on the dollar this week.