China Property

Mainland China developer Evergrande increases stake in Shengjing Bank

Evergrande to pay 10 billion yuan (HK$ 11.9 billion) to boost stake in Shenyang-based lender to 27.24 per cent

PUBLISHED : Thursday, 28 April, 2016, 12:34pm
UPDATED : Thursday, 28 April, 2016, 5:50pm

Debt-laden mainland China developer Evergrande Real Estate said on Thursday it will pay 10 billion yuan (HK$ 11.9 billion) to increase its stake in Shengjing Bank to 27.24 per cent, further expanding its footprint in the financial sector.

Evergrande, China’s second-largest home builder, said in a statement to the Hong Kong stock exchange it would buy 1 billion Shengjing shares from five domestic shareholders for an additional 17.28 per cent stake in Shengjing Bank.

Guangzhou-based Evergrande, controlled by billionaire Hui Kayan, has not missed a beat in its acquisition spree despite mounting debts. It bought a controlling stake in Zhejiang developer Calxon for 3.6 billion yuan last week and spent more than HK$70 billion to acquire property assets on the mainland and in Hong Kong in the second half of last year, including the HK$12.5 billion purchase of the Mass Mutual Tower office building in Wan Chai.

Shengjing Bank, a regional commercial bank based in Shenyang, the capital of Liaoning province, was granted a consumer finance licence in January, becoming one of the first 15 companies to hold such a licence on the mainland.

“The acquisition is expected to generate high investment return and will prove to be a reasonable investment,” Hui said in the filing.

Evergrande has branched out into various non-real-estate sectors including bottled water, health care and solar power in recent years. The developer also ventured into the financial sector last year by acquiring Great Eastern Life Insurance and changing its name to Evergrande Life Insurance.

The developer has forked out almost HK$100 billion in purchasing property and financial businesses, according to a calculation by the South China Morning Post, since last July.

Evergrande’s aggressive spending, which is backed by growing pile of debt amid a slowdown in the wider economy, has led to some market watchers expressing concern about its repayment ability.

The company had total debts of 300 billion yuan at the end of last year, plus a 75.7 billion yuan perpetual capital instrument. Its net gearing soared to 314 per cent last year, compared with 251 per cent in 2014, if the perpetual capital instrument is counted as debt.

On Wednesday, Fitch Ratings downgraded its long-term foreign-currency issuer default rating for Evergrande to B+ from BB-, with a negative outlook. Evergrande’s senior unsecured rating and the rating on its outstanding US$300 million in senior notes was downgraded to B- from BB-.

“The downgrade is due to Evergrande’s persistently high leverage, which leaves it with limited financial flexibility to face potential headwinds in the domestic property or credit markets,” the rating agency said.

Su Aik Lim, a senior director at Fitch Ratings, said China’s real estate sector is piling up risk due to industry saturation, noting that Evergrande would be vulnerable to any home sales slowing down.

“The rating could be further deteriorated if Evergrande can’t improve its leverage,” Lim said.