Evergrande pays $1.5b to increase holding in Shengjing Bank

Xu Jiayin, chairman of Evergrande Real Estate Group, left, and Xia Haijun, chief executive officer of Evergrande, attend a news conference in Hong Kong.[Photo/Agencies]

Debt-ridden Evergrande Real Estate Group Ltd has agreed to buy Shengjing Bank Co's domestic shares worth 10 billion yuan ($1.54 billion), the firm said in a filing to the Hong Kong Stock Exchange on Thursday.

Evergrande will lift its stake to 27.2 percent after acquiring more than 1 billion shares from five shareholders through a unit, it said.

Shengjing Bank received approval in January from the banking regulator for a consumer-finance firm, one of a handful of banks to hold such a license, Evergrande said in the filing, adding it expects the purchase to generate high returns.

Under Chairman Xu Jiayin, one of China's richest men, Guangzhou-based Evergrande has embarked on a spending spree that has seen the developer's debt swell. Evergrande may want to improve its access to funding and securing a stake of more than 20 percent also means that it can record a share of Shengjing Bank's profits in its earnings.

"Becoming a major shareholder of a bank helps Evergrande gain easier access to funding," Ross Lee, a credit analyst at Bank of China Hong Kong Ltd, said.

"It seems like the company is aiming to have a controlling stake in the bank eventually, forming its own 'Evergrande bank'."

Evergrande is paying 10 yuan a share for the stake, equivalent to a 7.8 percent premium to Shengjing Bank's closing price in Hong Kong on Wednesday, data compiled by Bloomberg showed. Industrial & Commercial Bank of China Ltd shares trade at a 20 percent premium in Shanghai to their Hong Kong price.

It is one of a string of acquisitions. Evergrande agreed earlier this month to pay 3.6 billion yuan for a stake in China Calxon Group Co.

Last year, it bought Mass Mutual Tower in Hong Kong for HK$12.5 billion ($1.6 billion), the most ever paid for a commercial building in the city, as well as agreeing to buy 13.5 billion yuan of assets from New World China Land Ltd.

Shengjing Bank rose 0.72 percent in Hong Kong to close at HK$11.16. Evergrande was unchanged, at HK$5.87.

The transaction will be funded by internal resources, Evergrande said. The developer, through a subsidiary, paid HK$3.89 billion for 5.59 percent of Shengjing Bank last month, saying in a statement that the acquisition was a "reasonable investment".