HomeBusinessShimao, a major Shanghai property developer, defaults on its debt

Shimao, a major Shanghai property developer, defaults on its debt

Shanghai-based Shimao Group failed to pay interest and principal on a $1 billion bond due Sunday, according to a company filing on the Hong Kong stock exchange. The bond had no grace period for principal, according to its offering document.

China’s real estate sector has been swinging from crisis to crisis since 2020, when Beijing began cracking down on excessive borrowing by developers in a bid to rein in their high debt loads and curb runaway house prices.

The problems escalated significantly last fall when Evergrande – China’s second-biggest property developer – began scrambling to raise funds to repay lenders. The beleaguered company is China’s most indebted property developer with some $300 billion in debt. It was rated as a defaulter by Fitch Ratings in December.
According to Moody’s estimates earlier this year, the Shimao Group has a large amount of debt maturing in 2022, including $1.7 billion in bonds held by international investors, 8.9 billion yuan (1, $4 billion) of bonds held by Chinese investors, and “significant” offshore bank loans.
An elderly couple walk past a sign in front of the Shimao Tower, developed by Shimao Group Holdings Ltd., in Shanghai, China, Saturday Jan. 8, 2022.

Founded by entrepreneur Hui Wing Mau in 2001, Shimao develops large-scale residential and hotel projects across the country. It owns Shanghai Shimao International Plaza, one of the tallest skyscrapers located in the heart of Shanghai.

In March, the company estimated that its 2021 net profit had plunged around 62% from a year earlier, mainly due to the “challenging” environment facing the real estate sector. It then delayed releasing its 2021 results, citing lockdowns in Shanghai.

“Due to the significant changes in the macro environment of the real estate sector in China since the second half of 2021 and the impact of Covid-19, the Group has experienced a notable decline in its contract sales in recent months, which is expected to continue. in the short term until the real estate sector in China stabilizes,” Shimao said in the filing on Sunday.

The company added that it was trying to reach “out-of-court resolutions” with its creditors over its inability to make principal payments on other offshore platforms. debt. In the absence of an agreement, creditors could force the company to accelerate repayments.

Since Evergrande’s insolvency, a string of top developers in the country have defaulted on their debts, including Fantasia and Kaisa.

The industry’s problems have been exacerbated by Beijing’s zero Covid policy and the slowing economy. China placed several of its major cities – including Shanghai – under strict lockdown earlier this year to tackle rising Covid cases, severely affecting business activity.

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Based in Beijing Sunac China, one of the country’s biggest developers, last month blamed the Covid outbreak for “significantly” hurting its sales in March and April and further exacerbating its cash shortage. At the same time, the developer admitted that it had defaulted on a dollar bond.

On Friday, a survey by the China Index Academy – a real estate research firm – showed new home prices in 100 cities fell more than 40% in the first half of this year, compared to the same period last year. last.

The authorities are trying to stem the bleeding. They stepped up efforts to revive home sales by lowering mortgage rates and easing rules on home purchases. Some promoters have found imaginative ways to boost sales, ranging from accepting grain or garlic as a down payment to offering pigs as an inducement to buyers.

Although there are signs that sales fell less dramatically in June than in previous months, the road to the property sector’s recovery is likely to be “quite bumpy” as Beijing remains committed to its zero-Covid approach, Nomura analysts said in a note on Monday.

Evergrande, meanwhile, is gearing up a vast government-led debt restructuring plan. The developer plans to present its proposals before the end of this month.

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