Troubled Shimao vows to fight back winding-up petition
Troubled property developer Shimao Group Holdings is facing a liquidation lawsuit brought by China Construction Bank, the country’s second-largest lender, for a financial obligation amounting to around HK$1.58 billion.
In a filing to the Hong Kong stock exchange yesterday, the Shanghai-based developer vowed to “vigorously” oppose the winding-up petition, which it said “does not represent the collective interests of the company’s offshore creditors and other stakeholders”, while working towards restructuring its offshore debt.
The company said late last month it was seeking to restructure US$11.7 billion worth of offshore debt in its latest efforts to avoid liquidation.
Shimao urged its offshore creditors to “carefully consider” the restructuring plan it put forward on March 25, in which it presented four options, including short-term and long-term notes offering an aggregate principal amount of no more than US$4 billion, according to an earlier exchange filing.
“This is one of the first instances where a property developer has faced a winding-up petition from a large, state-owned commercial bank, which means Shimao is facing serious debt trouble,” said Shen Meng, director at Chanson & Co, a Beijing-based boutique investment firm.
“The chances of it successfully restructuring its debt and paying back its creditors in the short term are pretty low.”
The pressure to liquidate is very much present among China’s embattled developers.
Country Garden Holdings, for example, received a winding-up petition in February for failing to pay back loans worth more than US$200 million. The developer downplayed the possibility of liquidation in a statement last month.
China Evergrande Group, the world’s most indebted developer, was ordered by a court in Hong Kong to liquidate in late January.
Mainland developers have been facing liquidity problems since a nationwide campaign was introduced in August 2020 to rein in debt in the sector. Many industry players have since defaulted on their debt.
To inject liquidity into the sector and shore up confidence, authorities have been rolling out piecemeal measures to offer developers a financial lifeline.
One of the most recent measures, launched in January, was the “project whitelist” mechanism, which allows local governments to recommend property projects to banks that are deemed to qualify for financial support.
However, the pressure to ramp up support for indebted developers is having a negative impact on the profitability of China’s commercial banks.
Bank of Communications, one of the country’s largest stateowned lenders, recently posted its slowest annual earnings growth since at least 2004, while its net interest margin fell as well.
Construction Bank also saw its net interest margin narrow, as did Industrial Bank of China, Bank of China and Agricultural Bank of China.