Mainland developer Shimao Group failed to pay off a $1 billion offshore bond that came due on Sunday, etching its name in the list of Chinese real estate firms defaulting on dollar-denominated debt.
Shimao owed more than $1.02 billion in principal and unpaid interest on the bond that matured on 3 July, the Shanghai-based builder said in a filing with the Hong Kong stock exchange.
Pointing to a liquidity crunch aggravated by China’s deteriorating property market since the second half of 2021, Shimao said it has hired financial and legal advisors to assess the group’s capital structure and explore solutions.
“The company will endeavour to continue to actively engage with its creditors and seek to implement an optimal solution that strives to treat its creditors fairly and protect the interests of the group’s stakeholders,” Shimao president Jason Hui said in the filing.
Notices of Support
The developer chaired by Hui’s father, Xu Rongmao (who also goes by his Cantonese name, Hui Wing Mau), said it has received no notice of acceleration of repayment from its creditors. Shimao highlighted that it has received notices of support in writing from the majority of the lenders of its dual-currency term loan facilities.
“Such lenders have expressed that they are generally supportive of the company continuing to explore the possibility of an agreement and implementation of a potential restructuring with its relevant stakeholders, and are willing to work with the company in a way that supports the company continuing to run its business with minimum disruption,” Hui said.
Shimao’s contracted sales for the first five months of 2022 totalled RMB 34.3 billion ($5.1 billion), a 72 percent decline from the same period in 2021. The firm said it has taken measures to mitigate the impact of adverse market conditions and enhance liquidity, including negotiating for extensions and waivers with respect to existing financings, accelerating sales and payment collections and disposing of certain assets.
Having appointed Hong Kong-based Admiralty Harbour Capital as its financial advisor and US law firm Sidley Austin as its legal advisor, Shimao said its offshore creditors could contact Admiralty Harbour for assistance.
“The group offers its sincere apologies to stakeholders for the non-fulfilment of its debt obligation as scheduled,” Hui said. “In the meantime, the group is committed to maintaining the stability of project construction and operations with a view to creating favourable conditions conducive to the solution to the matters of all its stakeholders.”
Shimao had waved several red flags in recent months as it stared down the barrel of $2.5 billion in bond payments coming due in 2022.
In January, the group’s Shanghai Shimao Construction unit defaulted on a $101 million project loan guaranteed by the parent firm, the South China Morning Post reported.
A property management subsidiary, Shimao Services, notified the HKEX in April that Big Four accounting firm PwC had resigned as the auditor of the company, in which Shimao holds more than a 63 percent stake, over disagreements on the timetable of the company’s delayed audit.
Fitch Ratings had downgraded Shimao’s issuer default and unsecured debt ratings to CCC in March before withdrawing coverage entirely in April after the developer chose to stop participating in the rating process.
Shimao’s Sunday announcement came less than two weeks after Shanghai-based developer Jingrui Holdings’ disclosure that it missed interest payments totalling $59.3 million on four sets of offshore bonds, as well as S&P Global Ratings’ downgrade of Greenland Holding to “selective default” after the government-backed builder obtained a one-year extension of a $500 million bond due on 25 June (S&P upgraded Greenland to CCC a few days later).