Hong Kong (CNN Business) Another major Chinese developer has defaulted on its debt, dealing another blow to the struggling real estate sector in the world’s second-largest economy.
Shanghai-based Shimao Group defaulted on interest and principal on a $1 billion bond due on Sunday, according to the company’s filing with the Hong Kong Stock Exchange. The bond had no grace period for principal, according to the offering document.
It is the first missed payment on dollar bond debt by Shimao, who has been struggling for months with mounting financial stress.
China’s real estate sector has been reeling from one crisis to another since 2020, when Beijing began cracking down on excessive borrowing by construction companies in an attempt to rein in their high debt and curb skyrocketing property prices.
The problems escalated significantly last fall when Evergrande — China’s second-largest real estate developer — began trying to raise money to repay lenders. The embattled company is China’s most indebted entrepreneur with about $300 billion in liabilities. Fitch Ratings flagged it as a defaulter in December.
According to Moody’s estimates earlier this year, Shimao Group has a large amount of debt maturing in 2022, including bonds worth $1.7 billion held by international investors, bonds worth 8.9 billion yuan ($1.4 billion ) held by Chinese investors and “big” offshore bank loans.
Founded by entrepreneur Hui Wing Mau in 2001, Shimao develops large-scale residential projects and hotels across the country. It owns Shanghai Shimao International Plaza, one of the tallest skyscrapers located in the heart of Shanghai.
In March, the company estimated that its net profit in 2021 was down about 62% from a year earlier, mainly due to the “harsh” environment facing the real estate sector. He then postponed the publication of his results until 2021, citing isolation in Shanghai.
“Due to significant changes in the macro environment of the real estate sector in China since the second half of 2021 and the impact of Covid-19, the Group has experienced a noticeable decline in its contracted sales in recent months, which is expected to continue in the near future until the real estate sector in China stabilizes,” Shimao said in a filing on Sunday.
The company added that it was trying to reach an “amicable resolution” with creditors about its failure to pay the principal of other foreign debt. In the absence of an agreement, creditors could force the company to accelerate repayment.
Since Evergrande’s bankruptcy, a number of high-profile developers in the country have defaulted on their debts, including Fantasia and Kaisa.
The industry’s problems have been exacerbated by Beijing’s zero-coronavirus policy and the slowing economy. China placed many of its major cities – including Shanghai – under strict quarantine earlier this year to combat a surge in Covid cases, which has severely hit business activity.
Beijing-based Sunac China, one of the country’s biggest developers, last month blamed the Covid outbreak for “significantly” hurting its sales in March and April and further exacerbating a liquidity crisis. At the same time, the developer admitted that he had not paid the dollar bond.
On Friday, a survey by China Index Academy — a real estate research firm — showed that new home prices in 100 cities fell more than 40% in the first half of this year, compared with the same period last year.
The authorities are trying to stop the bleeding. They stepped up efforts to revive home sales by lowering mortgage rates and relaxing home buying rules. Some developers have come up with imaginative ways to encourage sales — from accepting grain or garlic as a down payment to offering pigs as incentives to buyers.
While there are signs that sales fell less dramatically in June than in previous months, the road to recovery in the property sector is likely to be “quite bumpy” as Beijing remains committed to its zero-epidemic approach to Covid, Nomura analysts said in a note on Monday .
Evergrande, meanwhile, is preparing a major government-led debt restructuring plan. The developer plans to present its proposals before the end of this month.
