Chelsea_SunChelsea_Sun ・ Apr. 9, 2024
China’s Property Developer Shimao Group Faces Liquidation Petition From State-Owned Bank
In the filing to the exchange on Monday, Shimao vowed to “vigorously” oppose the winding-up petition, which it said “does not represent collective interests of the company’s offshore creditors and other stake holders,” while working towards restructuring its offshore debt.

(TMTPOST)—Shimao Group, a Shanghai-headquartered property developer, disclosed on Monday that it is facing a liquidation petition from a Chinese state-owned bank.

According to a filing with the Hong Kong Stock Exchange, China Construction Bank (Asia) lodged a "winding-up petition" against Shimao on April 5 in Hong Kong. The petition is linked to a financial obligation amounting to about HK$1,579.5 million ($204 million), according to the filing.

In the filing to the exchange on Monday, Shimao vowed to “vigorously” oppose the winding-up petition, which it said “does not represent collective interests of the company’s offshore creditors and other stake holders,” while working towards restructuring its offshore debt.

The overall restructuring plan includes options such as debt exchange and debt-to-equity swaps. Shimao Group offered four options to creditors: short-term instruments, long-term instruments, mandatory convertible bonds, and combinations of different instruments. These options involve converting debt into short-term instruments with a term of six years, long-term instruments with a term of nine years, mandatory convertible bonds with a term of one year, or a fixed combination of these instruments.

Additionally, Shimao Group disclosed the conversion of shareholder loans in the restructuring plan. Xu Rongmao, the founder and the chairman of Shimao Property, through his wholly-owned company, provided loans totaling HK$3.963 billion to Shimao Group and HK$3.839 billion to its subsidiary. Furthermore, Xu will exchange an outstanding shareholder loan of $600 million for a new long-term note of $600 million, and the remaining outstanding shareholder loan will be converted into mandatory convertible bonds.

Shimao's financial challenges trace back to July 2022 when it defaulted on interest and principal payments for a $1 billion bond.

The company’s shares were down over 14% in Hong Kong on Monday, having fallen nearly 40% this year.

China's property sector has encountered significant turbulence since 2020 when the government initiated measures to curtail excessive borrowing by developers and deflate the property bubble. Numerous Chinese developers have grappled with debt defaults, exacerbating concerns within the broader economy already strained by pandemic-induced lockdowns and economic pressures.

According to incomplete statistics, 16 real estate companies have been petitioned for liquidation in Hong Kong. In January, Evergrande, the world's most indebted property developer and emblematic of China's property crisis, was directed by a Hong Kong court to undergo liquidation. The ruling followed protracted discussions between the embattled real estate giant and its international creditors spanning 19 months, which failed to yield a debt restructuring plan.

The fallout from Evergrande's collapse raises uncertainties regarding the impact on investors, thousands of employees, and homebuyers awaiting property delivery.

Country Garden, another major developer that defaulted on its debt last year, similarly faced a liquidation petition in February from a creditor due to non-repayment of a loan.

To some extent, liquidation is a strategy for investors to increase their bargaining power, exert pressure on troubled enterprises, and prevent shareholders from operating in secrecy, said Yan Yuejin, research director of the E-House Research Institute.

It is also an important mechanism for protecting the rights and interests of investors. For these companies that have been subject to liquidation petitions, it is crucial to actively respond to investors' demands and proactively coordinate and repair investor relations, Yan added.

Introduced in January, one of the latest initiatives is the implementation of the "project whitelist" mechanism. Under this system, local authorities can recommend property ventures to banks that meet the criteria for financial assistance.

However, the push to bolster support for indebted developers is exerting adverse effects on the profitability of China's commercial banks. The Bank of Communications, one of the nation's largest state-owned banks, recently reported its slowest annual earnings growth since at least 2004, alongside a decline in its net interest margin.

Similarly, China Construction Bank experienced a contraction in its net interest margin, mirroring trends observed at the Industrial Bank of China, the Bank of China, and the Agricultural Bank of China.

(1 HKD equals US$ 0.13)

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