Shimao, a major Shanghai real estate developer, defaulted on debt

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

China’s real estate sector has been going through one crisis after another since 2020, when Beijing began to crack down on overborrowing by developers in an attempt to curb its high debt and rein in runaway house prices.

The problems escalated significantly last fall when Evergrande, China’s second-biggest real estate developer, began to struggle to raise cash to pay off creditors. The struggling company is the largest real estate developer in China, with about $300 billion in liabilities. In December, Fitch Ratings declared the company insolvent.
Earlier this year, Moody’s estimated Shimao Group had a large amount of debt maturing in 2022, including $1.7 billion in bonds held by international investors, 8.9 billion yuan ($1.4 billion ) owned by Chinese investors, and “significant” debts. loans from offshore banks.

Shimao, founded by entrepreneur Hui Wing Mau in 2001, builds large residential buildings and hotels throughout the country. He owns Shanghai Shimao International Plaza, one of the tallest skyscrapers located in the heart of Shanghai.

The company estimated in March that its 2021 net income was down about 62% year-over-year, largely due to the “harsh” conditions facing the real estate sector. He then delayed the release of the 2021 results, citing the quarantine in Shanghai.

“Due to significant changes in the macroeconomic environment in the real estate sector in China since the second half of 2021 and the impact of Covid-19 in recent months, the Group has experienced a marked decline in contract sales, which is expected to continue. soon until the real estate sector in China stabilizes,” Simao said in a statement on Sunday.

The company added that it was trying to reach a “global settlement” with creditors in connection with the non-payment of principal on other offshore companies. duty. In the absence of an agreement, creditors could force the company to speed up payments.

After the bankruptcy of Evergrande, a number of well-known developers in the country defaulted. on their debts, including Fantasia and Kaisa.

The industry’s problems are exacerbated by Beijing’s anti-coronavirus and economic slowdown policies. Earlier this year, China imposed lockdowns in many of its major cities, including Shanghai, to combat a rising number of Covid cases, hitting business activity hard.

Down payments for wheat and free pigs: how Chinese developers are trying to sell houses
in Pekin Sunac China, one of the largest developers in the country, last month blamed the Covid outbreak for “significant” damage sales in March and April, further exacerbating the liquidity crunch. At the same time, the developer defaulted on dollar bonds.

On Friday, a survey by China Index Academy, a research firm, showed that new home prices 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. They are stepped up efforts to revive home sales by lowering mortgage rates and easing home buying rules. Some developers have come up with ingenious ways to encourage sales, from accepting grain or garlic as a down payment to offering pigs as an incentive for buyers.

While there are indications that June sales declined less sharply than in previous months, the road to a real estate sector recovery is likely to be “rather bumpy” as Beijing remains committed to its zero-Covid approach, Nomura analysts said in a note. Monday.

Evergrande is getting ready a huge government-led debt restructuring plan. Developer plans Submit your proposals by the end of this month.

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