Shanghai-based property giant Shimao Group is facing a liquidation petition from a Chinese state-owned bank, as creditors take legal action to reclaim money from troubled developers in China. The petition was filed by China Construction Bank (Asia) in connection with a financial obligation of approximately HK$1,579.5 million. Shimao stated that it will vigorously oppose the petition and work towards an offshore restructuring to maximize value for stakeholders.
The debt troubles for Shimao Group began in July 2022 when the company failed to pay the interest and principal on a $1 billion bond. As a result, the company’s shares have fallen over 14% in Hong Kong, with a total drop of nearly 40% this year. China’s real estate sector has faced challenges since the government cracked down on excessive borrowing by developers in 2020 to cool the property bubble. Many Chinese developers have since defaulted on their debts, impacting the broader economy’s slow recovery from pandemic lockdowns and other challenges like record-high youth unemployment.
In January, Evergrande, the world’s most-indebted property developer, was ordered to liquidate by a Hong Kong court after failing to agree with overseas creditors on debt restructuring during 19 months of talks. The collapse of Evergrande raises concerns about the impact on investors, thousands of workers, and homebuyers waiting for their apartments. Another major developer, Country Garden, also faced a liquidation petition in February after defaulting on its debt.
The financial stress in China’s real estate sector is a significant concern, with numerous developers facing challenges managing their debts and obligations. The industry’s struggles have become a drag on the broader economy, impacting the country’s recovery from pandemic-related shutdowns. The government’s efforts to cool the property bubble and address excessive borrowing have led to a wave of defaults by developers, adding to economic uncertainty and financial instability.
Shimao Group’s opposition to the liquidation petition from China Construction Bank (Asia) highlights the ongoing turmoil in the Chinese real estate market. The company’s efforts to restructure its debt and protect the interests of offshore creditors and stakeholders reflect the challenging environment facing developers in the world’s second-largest economy. The continuing fallout from the property crisis, including liquidation orders for major developers like Evergrande and Country Garden, underscores the far-reaching impacts of the industry’s struggles on investors, workers, and homebuyers in China.
