Shimao’s debt raises concerns about cash shortages in Chinese assets

The Shanghai Stock Exchange has suspended trading on some bonds held by Chinese property developer Shimao, a day after the company’s loan defaults raised concerns that a cash crunch will spread further in the country’s struggling real estate industry.

The transaction of three yuan-denominated bonds from the residential developer, which, unlike many other struggling companies that recently maintained its investment-grade credit rating, has been temporarily suspended following the plunge. plummeted following Thursday’s report of missed payments.

The problems in Shimao show that China’s real estate sector is troubled, mainly affecting companies with riskier credit rating such as Evergrande and Kaisa Group, can go viral to more highly regarded developers as they grapple with Home sales drop and lose investor confidence.

The country’s economically important real estate sector has slowed markedly in recent months after construction delays and default fears due to heavily indebted Evergrande left Evergrande underfinance and fueling a broader cash crisis. Evergrande and some of its peers have defaulted on international debt.

The Chinese authorities responded by installing government figures into a risk committee to manage the restructuring of Evergrande and notice stimulus measures to support the economy. But Shimao’s troubles suggest that those developments have yet to address the liquidity issues plaguing the industry.

An unit of Shimao said in a statement Friday that although it faces liquidity pressure, it has not defaulted on any public debt and it is taking measures to strengthen property and property sales. But their bonds immediately focused on the foreign bond market, where they borrowed $7 billion, compared with $19 billion at Evergrande.

A Shimao bond maturing in July fell to 49 cents against the dollar, after previously trading at more than 70 cents against the dollar. In Hong Kong, shares of Shimao fell 7% on Friday.

Another Hong Kong-based investor thinks other “double B names,” which refer to credit ratings just below investment grade, will also experience strains. “People thought Shimao should be relatively safe before,” the person said.

The suspension of trading comes after China Credit Trust, a company that raises trust funds on behalf of the group, said in a letter to investors that one of Shimao’s units had defaulted on its debt. after missing a payment of 10645 million Rmb ($103 million). On Friday, Shimao said it was negotiating the payment and the matter would not affect its other debts.

To combat concerns about property bubbles, Beijing last year imposed regulations on property developers that restrict their borrowing. Unlike many of his colleagues, Shimao did not violate any “three red lines, highlighting the vulnerability of businesses that are more secure against market volatility.

Major developers in China are experiencing slowing apartment sales, exacerbating cash shortages at the time. Refinance options have been limited. Shimao, which is headquartered in Shanghai, has sales of Rmb 170 billion in 2021, down 10% from a year earlier. In December, its sales fell 68%, according to estimates from analysts at Citi.

The company became the focus of the market in November due to concerns related to trust products in the mainland, and it was downgraded by international rating agencies despite stating in December that its operations The company’s behavior is “normal”. Fitch noted last month that the company faces “diminished investor confidence,” which could affect its ability to refinance.

“Several strong property developers in China have continued to issue debt securities in the country, but that path may not be available to Shimao if investor confidence is not restored,” the agency said. ratings said.

Additional reporting by Wang Xueqiao in Shanghai and Sun Yu in Beijing

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