Shimao creditors get organised after US$1b bond default

SHIMAO Group Holdings’ global creditors are gearing up to organise themselves after the luxury builder defaulted on a US$1 billion dollar bond that was due on Sunday (Jul 3). 

An executive at investment bank Houlihan Lokey asked Shimao bondholders to join its creditor group, according to people at firms that hold the notes who dialed into a conference call late Tuesday arranged by the adviser and Weil, Gotshal & Manges. Shimao is now embracing a holistic restructuring and that’s expected to take some time, said the people who aren’t authorised to speak publicly about their holdings, citing an executive on the call. 

The developer, Houlihan and Weil didn’t immediately respond to requests for comment. Moelis & Co is also hosting a call with investors at 9 pm Hong Kong time Tuesday, according to a Debtwire report.

The emergence of multiple creditor groups after a default can make it harder for bondholders to advocate for their interests, particularly if rival cohorts are formed. Advisers to Shimao’s offshore bondholders set up the investor calls after the developer said Sunday that it had hired advisers and hasn’t paid some of its offshore debts.  

Houlihan and Weil are advising a large holder of Shimao’s bonds and looking to expand the group, while Debtwire reported that Moelis wants to grow the ad-hoc group of offshore noteholders that it is advising. A representative for Moelis didn’t immediately respond to a Bloomberg request for comment. 

“For offshore investors, the key worry is that Shimao will likely prioritize payments to onshore creditors,” said Leonard Law, senior credit analyst at Lucror Analytics. “The restructuring process will certainly be lengthy, given that the company has a large amount of off-balance-sheet debts that need to be accounted for” and offshore bondholders generally have little ability to influence outcomes, he added. 

Shimao, whose landmark projects included five-star hotels in Shanghai, was once considered largely immune to the sweeping crackdown that has engulfed larger peers like China Evergrande Group and Sunac China Holdings. Though its dollar bonds have been trading at distressed levels for several months, mounting worries about its financial health since late last year are a sign that stress is taking its toll on a widening set of players. The firm’s dollar bond due 2024 is indicated at about 10 cents on the dollar Wednesday, Bloomberg-compiled prices show.

The country’s 14th-biggest developer last year was once popular with global investors who had considered it a safer name. Any possible restructuring at the firm will be closely eyed by other global creditors already grappling with the consequences of more than US$25 billion of offshore-bond defaults this year. 

“The Shimao default shows that the property restrictions are increasing the stress on the developers and the government is not backing down from reducing property prices,” said Andrew Collier, a managing director at Orient Capital Research. “Restructuring, even among private developers, will have to wind their way through local governments politics and state firms, which will cause delays.” 

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Chinese developer Shimao fails to pay US$1 billion dollar bond

Creditors are bracing for a long road to repayments as defaulting property developers make little headway on restructuring of their offshore debt, even as bondholders hire advisers to help advocate on behalf of their interests. There was a question about non-disclosure agreements on the investor call with Houlihan, the people familiar said.

Investors are also watching for any sign of direct or indirect government involvement in Shimao’s process. The extent and scope of state support during the credit crunch has been closely scrutinised, particularly as stress spills over from private developers to those with some level of government backing. BLOOMBERG