A consortium of Chinese state-owned and private companies agreed to pay the equivalent of $1.05 billion for a minority stake in a domestic bank held by China Evergrande Group, helping the troubled property developer settle a dispute over one of its debt obligations.
The group of seven companies, which were mostly from China’s northeastern Liaoning province, was the sole bidder in an auction arranged by a local court, which had put a 14.6% stake in a regional commercial lender called Shengjing Bank Co. up for sale.
The opening price of the auction on Taobao, Alibaba Group Holding Ltd.’s internet-auction platform, was 7.31 billion yuan, equivalent to $1.05 billion—the same as the consortium’s bid. Three of the companies in the group are majority- or wholly owned by the government of Shenyang, the capital of Liaoning province.
Evergrande, the world’s most indebted developer, in late July disclosed that one of its subsidiaries had been told to honor a guarantee of that amount following an arbitration ruling. That subsidiary had pledged all its shares in Shengjing Bank toward the guarantee, and Evergrande indicated that the stake would have to be sold.
Evergrande used to be the bank’s largest shareholder and once owned more than 36% of the lender. Shengjing Bank is based in Shenyang and has 18 branches in five Chinese provinces and municipalities. It also previously made loans to Evergrande.
After the developer began to struggle with liquidity problems last year, Evergrande sold more than half its ownership in the bank to Shenyang Shengjing Financial Holdings Investment Co., a subsidiary of the state-owned Assets Supervision and Administration Commission of Shenyang. That deal, for a 20% stake in the bank, was valued at about $1.5 billion.
The sale of Evergrande’s remaining stake in the lender will help stabilize the bank’s operations, said Wang Xiaoqiang, a senior analyst with zhuge.com, a real-estate data company. “Shenyang SASAC’s acquisition of the shares will not only improve Shengjing Bank’s operation, but also help China Evergrande to tide over difficult times,” Ms. Wang added.
Song Hongwei, a research director of Tongce Research Institute, which tracks and analyzes China’s real-estate market, said the local government had to step in to help resolve the situation. He said that if the auction had failed, it could have affected Shengjing Bank’s valuation or posed risks to the lender.
Shengjing Bank, which is listed in Hong Kong, last month reported net-profit equivalent to about $136 million for the first half of 2022, down 8.4% from the same period a year ago. The bank had total assets of $152 billion at the end of June.
Evergrande, which disclosed roughly $300 billion in liabilities in mid-2021, has been trying to reach an agreement with its creditors after defaulting on its international debt late last year. Its Chief Executive Shawn Siu told Chinese media earlier this week that the developer would strive to come up with a plan to restructure its offshore debts by the end of the year.