Shimao puts residential projects on sale as China property woes deepen

[HONG KONG] Shimao has put all its projects on sale, local media reported, as Chinese property developers face mounting pressure to negotiate with their creditors to ease a liquidity squeeze in the sector that is threatening to push more firms into default.

China Evergrande Group, the world's most indebted developer, is seeking a 6-month delay in the redemption and coupon payments of a 4.5 billion yuan (S$957 million) bond in a meeting with bond holders. The outcome of the meeting is expected later Monday (Jan 10).

Evergrande is struggling to repay more than US$300 billion in liabilities, including nearly US$20 billion of offshore bonds deemed in cross-default by ratings agencies last month after it missed payments.

Reuters reported last week that China will make it easier for state-backed property developers to buy up distressed assets of debt-laden private peers, another step by policymakers to avert a liquidity crisis in the sector.

Smaller peer Shimao Group Holdings, which defaulted on a trust loan last week, has put on sale all of its real estate projects, including both residential and commercial properties, Caixin reported over the weekend.

The Shanghai-based property developer has struck a preliminary deal with a Chinese state-owned company to sell its Shimao International Plaza Shanghai, a commercial property on Shanghai's Nanjing Road, for more than 10 billion yuan, the report said.

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The company did not respond to a request for comment.

Daiwa said in a research report that Shimao will find itself in a vicious cycle of liquidity issues given the recent negative news, even though the firm said it is not in debt servicing default.

Shimao unit Shanghai Shimao Construction said on Friday (Jan 7) that it was in talks with China Credit Trust to resolve a US$101 million defaulted loan payment.

The missed trust payment would not accelerate payment requests in the open bond market, it added.

Reuters also reported on the same day that the unit has proposed extensions on maturities for 2 asset-backed securities (ABS) due this month totalling 1.2 billion yuan.

"We believe negative publicity will erode the confidence of home buyers and investors," Daiwa said. "This, in turn, would negatively impact Shimao's future refinancing activities and contract sales prospects and lead to further deteriorating cash flows and liquidity."

It estimates Shimao to have around 23 to 25 billion yuan in corporate bonds, ABS and trust loans due for payment in 2022, noting it has only 16.1 billion yuan in cash.

LIQUIDITY CRISIS

Chinese developers are facing an unprecedented liquidity squeeze due to years of regulatory curbs on borrowing, leading to a string of offshore debt defaults, credit-rating downgrades and sell-offs in developers' shares and bonds.

Small developer Modern Land, which has missed payment for its 12.85 per cent notes due Oct 25, 2021, said in a filing on Monday it has received notices from certain noteholders demanding early repayment of their senior notes.

The developer said it has been in discussion with these creditors for a waiver and it has appointed financial advisers to formulate an overall plan for feasible remediation actions.

The firm is also in talks with noteholders on a restructuring plan for its US$1.3 billion of offshore bonds, it added.

"It's going to be the peak of repayment period and we'll see more developers default," said Kington Lin, managing director of Asset Management Department at Canfield Securities.

"The market is watching how many SOEs will get more M&A loans to help the developers in distress."

Modern Land shares, which have been suspended since Oct 21, sank nearly 40 per cent on Monday morning to HK$0.23, a historical low.

As at 3.35 am GMT, shares of Evergrande fell 3.4 per cent, while Shimao gained 3 per cent.

REUTERS