Recent Dispute Revealed: Changsha Bank Faces Payment Dispute with Evergrande Auto
Changsha Bank Limited recently made public an announcement disclosing a dispute concerning a guarantee contract with Evergrande Automobiles, wherein the latter owes the bank a staggering 1.77 billion yuan. This outstanding amount almost equals the bank’s profits for a quarter.
In an announcement made on December 21st, Changsha Bank stated that they received a civil judgment from the Intermediate People’s Court of Guangzhou, Guangdong Province. The judgment held Deep Tide Lifestyle Services (Guangdong) Co., Ltd. responsible for the debt of 1,776,495,752.79 yuan to the original plaintiff Changsha Bank Limited Guangzhou Branch, relating to Evergrande Intelligent Auto (Guangdong) Co., Ltd.
According to a report from China Real Estate News on December 26th, in April 2019, Changsha Bank Guangzhou Branch signed a credit agreement with Evergrande Intelligent Auto, providing a credit line of 1.5 billion yuan. In the same month, the bank also signed a guarantee contract with Deep Tide Lifestyle for this credit line, whereby the latter agreed to provide the highest amount joint liability guarantee for Evergrande Intelligent Auto’s 1.5 billion yuan loan. Over the following two years, Changsha Bank Guangzhou Branch gradually issued loans totaling 1.5 billion yuan to Evergrande Intelligent Auto, with a maturity date set for April 2027.
After Evergrande faced financial risks, Evergrande Automobiles suffered significant repercussions. Since 2021, both subsidiaries, Evergrande Intelligent Auto and Evergrande New Energy Automobile, have been plunged into crisis due to a broken funding chain.
In March 2022, Changsha Bank discovered that Deep Tide Lifestyle, which guaranteed the 1.5 billion yuan loan for Evergrande Intelligent Auto, had made unauthorized changes to its equity without informing the bank, a serious violation of the related guarantee contract terms. Consequently, Changsha Bank sent a letter demanding Deep Tide Lifestyle to fulfill its loan guarantee responsibilities in advance. After over two years, the case was finally settled by the court.
In a report by Chinese finance media and Deep Blue Finance on December 26th, it was stated that Evergrande Group is currently in a mess, with total debts amounting to a staggering 2.39 trillion yuan. The financial statements show that as of the first half of 2024, Evergrande Automobiles’ total debt reached 74.35 billion yuan. In this context, the likelihood of Changsha Bank recovering the over 1.7 billion principal and interest seems extremely low.
In 2023, Changsha Bank’s net profit attributable to equity shareholders was 7.463 billion yuan. The loan amount extended by Changsha Bank amounts to 1.4 billion, nearly 20% of the previous year’s net profit. Additionally, as of the end of the third quarter of this year, Changsha Bank’s total non-performing loans stood at 543.23 billion, with a non-performing loan balance of 6.291 billion and an NPL ratio of 1.16%. This loan comprises almost 30% of the non-performing loans. The report suggests that if this loan cannot be recovered, it will lead to significant losses for Changsha Bank.
Not only is the recovery probability low for this loan with Evergrande Autos, but Changsha Bank also faces challenges in recovering several other loans.
In March 2024, Changsha Bank announced a financial dispute with Hunan Jinwang Bismuth Industry Co., Ltd. As of January 17, 2021, Jinwang Bismuth Industry owed the bank a total of 910 million yuan in loan principal and interest. However, Jinwang Bismuth Industry was declared bankrupt by the Intermediate People’s Court of Chenzhou, making it impossible for Changsha Bank to recover the loan principal and interest, leading to the write-off of the involved loans.
Moreover, from 2020 to 2023, Changsha Bank provided credit lines to Xinhua Lian and its affiliated enterprises totaling 8.6 billion yuan, 8.4 billion yuan, 8.39 billion yuan, and 2.23 billion yuan, accumulating to 15.8 billion in credit balances. Since Xinhua Lian got caught up in a debt crisis and judicial restructuring, its assets, including Changsha Bank’s shares, have been put on the line. Currently, the recovery of associated loans by Changsha Bank remains a focus of the market.
Just with the mentioned companies, Changsha Bank has hit a total financial loss of 4.856 billion yuan in recent years.
Differing from other city commercial banks, Changsha Bank heavily relies on traditional interest income, with interest income accounting for about 80%, while the scale of intermediate business income is relatively small. Since 2021, Changsha Bank’s net interest spread level has continuously declined, from 2.40% in 2021 to 2.01% in the first three quarters of this year, affecting the net interest income.
Under pressure in performance, shareholders of Changsha Bank have started to divest.
The major shareholder of Changsha Bank, Hunan Xingye Investment, has been steadily reducing its holdings for multiple quarters. In the first quarter of 2023, Xingye Investment decreased its holdings by 4 million shares, dropping its stake below 5%. Since the beginning of this year, Xingye Investment has reduced its holdings for two consecutive quarters, selling 12.5 million shares in the second quarter and 21.15 million shares in the third quarter.
On October 31, Xiangyou Technology announced the sale of 4.8506 million shares of Changsha Bank through centralized bidding, with a transaction amount of 40.2319 million yuan, completing the liquidation.
Some netizens commented, “Now the bank’s withdrawal limit, on the surface, is to prevent telecom fraud, but the real reason is a liquidity problem! Currently, only by boosting the stock market and continuing financing can the bank survive.”
Netizen ‘Keen for Leo’ expressed, “The rise in bank stocks is just to find a scapegoat. In the last two years, the real estate market has hit a snag, and many people default on their mortgages. If the bank’s performance continues to rise, it can only prove that the financial reports are falsified.”