Shimao, a large real estate developer in Shanghai, defaults on debt

Shanghai-based Shimao Group failed to pay interest and principal on a $1 billion bond maturing on Sunday, according to a company filing on the Hong Kong Stock Exchange. The bond did not have a grace period for the principal, according to its offering document.

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

The problems escalated dramatically last fall when Evergrande – China’s second-largest real estate developer – began scrambling to raise money to repay lenders. The embattled company is the largest debt-ridden real estate developer in China, with debts of $300 billion. It was rated as a default by Fitch Ratings in December.
Moody’s estimated earlier this year that Shimao Group will have a significant amount of debt due in 2022, including $1.7 billion in bonds held by international investors, and 8.9 billion yuan ($1.4 billion) in bonds. Held by Chinese investors, and “big.” External bank loans.

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

In March, the company estimated that its net profit for 2021 was down about 62% from the previous year, mainly due to the “harsh” environment faced by the real estate sector. It then postponed the release of its results for 2021, citing the lockdowns in Shanghai.

“Due to significant changes in the overall environment of the real estate sector in China since the second half of 2021 and the impact of Covid-19, the group has seen a significant decline in its contractual sales in recent months, which is expected to continue in the near term until it stabilizes,” said Shimao. real estate sector in China.

The company added that it was trying to reach “friendly resolutions” with creditors about its failure to make capital payments abroad. religion. In the absence of an agreement, creditors can compel the company to speed up repayment.

Since the bankruptcy of Evergrande, a series of prominent developers in the country have stumbled on their debts, including Fantasia and Kisa.

The industry’s problems have been exacerbated by Beijing’s non-proliferation policy and the slowing economy. China placed many of its major cities – including Shanghai – under strict lockdown earlier this year to combat rising Covid cases, hitting business hard.

Free wheat and pig payments: How Chinese developers are trying to sell homes
Beijing based Sunac China, one of the country’s largest developers, last month blamed the Covid outbreak for the “significant” damage. Its sales in March and April exacerbated its liquidity crunch. At the same time, the real estate developer admitted that he had defaulted on dollar bonds.

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

The authorities are trying to stop the bleeding. that they They stepped up their efforts to revive home sales by lowering mortgage rates and relaxing rules on home purchases. Some developers have come up with innovative ways to stimulate sales – from accepting grain or garlic as a down payment to offering pigs as an incentive to buyers.

While there were signs that sales fell less sharply in June than in previous months, the road to a property sector recovery is likely to be “extremely bumpy,” as Beijing remains committed to a zero-Covid approach, Nomura analysts said in a note on Monday.

In the meantime, Evergrande is preparing Huge government-led debt restructuring plan. The developer plans to submit its proposals before the end of this month.

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