State-owned company Shenyang Shengjing Group in China bought 19.93 percent of Evergrande, which was on the verge of bankruptcy, for 9.99 billion yuan.
China has moved in to buy a share in a struggling Evergrande Group, in an effort to limit banking sector contagion from the troubled property developer. Evergrande agreed to sell a 20 per cent stake in Shengjing Bank Co to the local Shenyang government for 10 billion yuan.
The transaction demonstrates how, in order to avoid a bailout, authorities are taking steps to limit the impact of Evergrande’s deepening liquidity crisis on the banking system. At least ten banks told investors earlier this month that they have enough collateral for the developer’s loans and that the risks are manageable. According to persons familiar with the situation, Hong Kong’s central bank required lenders to reveal their exposure to Evergrande Group.
“Maintaining social and financial sector stability is still the overarching policy objective of the Chinese government,” said Nicholas Zhu, a senior analyst at Moody’s Investors Service.
Shenyang Shengjing Finance Investment Group Co will buy roughly 1.75 billion non-publicly traded domestic shares in Shengjing Bank from Evergrande for 5.7 yuan each. Evergrande raised around 1 billion yuan in August via the sale of a share in Shengjing Bank.
Shengjing Bank’s first-half earnings fell by more than 60% due to lower net interest income and increased impairment losses on assets. “The company’s liquidity issue has adversely affected Shengjing Bank in a material way,” Evergrande said in the statement
Evergrande is under increasing pressure to pay off its obligations. The company has already missed payments to banks, suppliers, and onshore investment product holders.
Evergrande’s credit rating was reduced to C from CC on Wednesday by Fitch Ratings, which said the developer had likely missed interest payments on senior unsecured notes and had entered a 30-day grace period.