A subsidiary of developer giant China Evergrande Group has received a notice from a bank. It commenced legal proceedings against the company for huge unrecoverable funds.

China Evergrande Group issued a statement to the Hong Kong stock exchange on November 1. It said that its subsidiary, Evergrande Group Co., Ltd., received the enforcement notices from the Shenyang City Intermediate People’s Court in Liaoning Province.

The subsidiary was the defendant and Shengjing Bank Co., Ltd. was the plaintiff in this civil litigation.

According to the statement, Shengjing Bank provided funds totaling 32.6 billion yuan ($4.5 billion) to the Evergrande subsidiary from 2020 to 2021.

The subsidiary pledged nearly 31% of a nearly 41% stake held in Xinjiang Guanghui Industry Investment Group as security.

Because the bank has been unable to recover the funds from the Evergrande subsidiary, it has taken legal action in the court.

According to the notices, the pledged equity interest has been enforced. Shengjing Bank may auction off or sell the pledged equity interest and shall have priority at the $4.5 billion of the proceeds.

The Evergrande unit shall bear litigation costs and preservation fees, approximately 163 million ($22.4 million).

China Evergrande Group defaulted on its dollar debt at the end of 2021. The group now has about $300 billion in debt.

After Evergrande fell into the debt crisis, it triggered a ripple effect across China.

Evergrande’s financial woes have spread to the mainland real estate market and many related sectors.

A lot of companies in construction services, building materials, interior decorators, and many others Evergrande owes money to have absorbed large losses. Some of them were forced to lay off employees and delay paying their own bills.

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