Chinese developer Shimao defaults on $1bn bond amid worsening debt crisis

The company has about $5.5bn in outstanding offshore bonds

The Intercontinental Shanghai Wonderland Hotel, a five-star hotel built in an abandoned quarry, is one of Shimao's projects. Bloomberg
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Chinese developer Shimao Group Holdings missed payment on a $1 billion bond that was due on Sunday, its first default on a public bond after months of mounting stress.

Shimao’s delinquency is among the biggest dollar payment failures so far this year in China. The company has about $5.5bn in outstanding offshore bonds.

The luxury builder’s bonds have been priced in deep levels of distress since the start of the year, with most notes falling to record lows of below 15 cents on the dollar after the company missed the repayment date on a private note.

Shimao, whose projects include a five-star hotel built into an abandoned quarry, was once considered largely immune to the sweeping crackdown that has engulfed larger peers such as China Evergrande Group and Sunac Group Holdings.

The country’s 14th-biggest developer by contracted sales has faced mounting worries about its financial health since late last year, with stress in the industry taking its toll on a widening set on players.

“The contagion has spread from Evergrande to Sunac and now Shimao,” said Kristy Hung, a Bloomberg Intelligence analyst. “That raises our concerns that the extent of the debt crisis is beyond any market watcher’s imagination.”

Shimao also has not made principal payments involving some other offshore debts and has been in discussion with creditors while trying to reach “amicable resolutions”, it said in a Hong Kong exchange filing.

If it cannot, “creditors may have the right to demand acceleration of repayment” and take enforcement actions, according to the company.

There is no grace period for the principal on the company’s $1bn dollar bond, according to the note’s offering circular, Bloomberg reported. The builder is among the largest property debt issuers in China.

Shimao’s announcement of a default, rather than an extension plan proposal, “shows the company’s weak financial situation to meet its debts payment schedule and the necessity for an overall debt restructuring plan”, said Ting Meng, senior Asia credit strategist at ANZ Bank China.

The default was expected after the company missed a dollar private bond payment and delayed onshore debt payments, she said.

“Due to market uncertainties over debt refinancing and generally challenging operating and funding conditions, the group experienced negative developments on its credit ratings and the occurrence of principal non-payments under certain of its offshore indebtedness,” Shimao said in its filing.

The company said in a separate statement that it sold about 20 more property projects to raise money.

It also expects to be able to accelerate cash inflow from property sales as the real estate market shows signs of rebound.

New-home sales rose by an estimated 31 per cent in June, from May, in 30 key Chinese cities, according to China Real Estate Information Corporation.

Meanwhile, Shimao has appointed Admiralty Harbour Capital as its financial adviser and Sidley Austin as its legal adviser to help in assessing its capital structure, liquidity and options, the builder said in the bourse filing.

Updated: July 04, 2022, 8:55 AM