Embattled property developer Evergrande on Wednesday said it will sell a $1.5 billion stake in a regional Chinese bank to raise much-needed capital, as it struggles to make interest payments while being choked by debts and ratings downgrades.
The stake sale to a state-owned group is Evergrande's first major asset disposal as it attempts to claw its way back from the brink of collapse.
Experts fear a chaotic implosion of the company, which is saddled with more than $300 billion in debts, could reverberate through China's banking and property sectors, and possibly into the global economy.
The Shenzhen-based conglomerate agreed to sell 1.7 billion non-public shares in northeastern China's Shengjing Bank to Shenyang Shengjing Finance Investment Group, Evergrande said in a Hong Kong exchange filing.
"The Company’s liquidity issue has adversely affected Shengjing Bank in a material way," the filing said, adding that the agreement would still need to be approved by the bank's board of directors.
Evergrande shares jumped more than 14 percent in Hong Kong on Wednesday.
A $47.5 million interest payment on a US dollar bond is also due on Wednesday, less than a week after it was meant to pay up for another note.
It is not known if the firm has met its obligations, though it has a 30-day grace period before it is considered to be in default. I did reach a deal to pay interest on a yuan-denominated note last week.
Fitch Ratings downgraded China Evergrande Group's credit score to C from CC, just above the equivalent default level, as the latest payment loomed.
"The downgrades reflect that Evergrande is likely to have missed interest payment on senior unsecured notes" and entered the grace period, Fitch analysts wrote in a report.
Some creditors claim that Evergrande is responsible for a further $260 million bond payment due Sunday and will press their claims if the firm defaults, Bloomberg News reported Tuesday.
Beijing has stayed silent on the travails of the property empire, but state media has trailed various responses in a nod to the mood towards a private company that grew on a debt binge in the boom years of Chinese real estate.
State newspaper Economic Daily said rules around China's property sector could be loosened purely because of Evergrande's woes.
"We cannot simply relax regulations just because of the emergence of some new situations in individual housing companies," it said in a commentary Wednesday. "We cannot return to the old path of using real estate as a short-term economic stimulus tool."
The group's high-flying EV unit scrapped a planned Shanghai listing over the weekend, warning of the parent company's "serious shortage of funds", which forced it to suspend payments to staff and suppliers.