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Shimao Group’s Shanghai unit defaults on US$101m project loan
The start of 2022 has been turbulent for Chinese developers as mountains of debt come to maturity, adding to their financial woes.
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- Developer’s subsidiary fails to fulfill obligation as a guarantor for a trust product, China Credit Trust tells investors
- Shimao’s share price and bonds slump, though it denies defaulting “on any loan in the open market”
A Shanghai construction materials supplier with links to the Shimao Group has defaulted on a US$101m project loan guaranteed by the Hong Kong-listed group, adding to its recent debt burden.
Shanghai Shimao Construction Company failed to repay the proceeds as a guarantor for a project that raised funds for Shanghai Qianyi Construction Materials Company, according to a notice sent to investors on Thursday by China Credit Trust (CCT), the trustee for the loans.
Shanghai Shimao Construction, a Shimao Group subsidiary, indirectly owns a 30 per cent stake in the materials suppler, the group said in an announcement on Friday.
As of Thursday, CCT said it had only received 147 million yuan (US$23 million) of the 792 million yuan that was due by December 27. The failure to make the payment constituted a default on the trust loan, CCT said in the note seen by the Post.
Shanghai Shimao Construction said on Friday it had not defaulted “on any loan in the open market”. It said its failure to pay what it owed on the trust product would not trigger demand for faster redemption of its liabilities in the open market.
However, the default on the private loan adds to the woes of the troubled developer, which had seen its shares and bonds slide in recent months amid increasing concerns about its ability to service debt.
Fuelled by the debt crises of peers such as China Evergrande Group and Kaisa Group, the start of 2022 has been traumatic for developers as mountains of bonds and loans reach maturity.
The share price of Shimao Group Holdings slumped 6.2 per cent in Hong Kong on Friday, having lost more than 77 per cent in 2021. Its dollar bonds plummeted at least 10 cents on the dollar on Thursday, according to Bloomberg.
The slump continued on Friday, with the share price plunging as much as 17 per cent in the morning.
Last year’s defaults by developers such as Fantasia Holdings and Modern Land had already caused big losses for many funds, and led to a 6.2 per cent drop in dollar-bond sales in the first 11 months of 2020 according to Fitch Ratings.
“Although the company faces certain liquidity pressure in the current market environment, the company will firmly take measures to speed up sales, receivables and asset disposals,” Shanghai Shimao Construction said in an announcement to the Shanghai Stock Exchange on Friday.
The trust project in question, dubbed “Chengyi No. 11” and established in September, 2020, had outstanding debt of 645 million yuan as of Thursday, CCT said. The trust company had demanded redemption of the loans by December 27, roughly three months early, because of the failure to fully pay the overdue installment.
The funds from the property project in Foshan city built by a Shimao subsidiary serve as the major source for repaying the trust loans, Shimao said. The sales are still ongoing, it added.
In Thursday’s notice, CCT said it would “take necessary measures including applying for seizures of assets [by court] and disposal of collaterals and legal action based on the actual situation of the project, to protect the trust asset safety and interest of the beneficiaries.”
Shimao and CCT did not reply to requests for comments from the Post.
Shimao was in discussions with a number of trust companies to extend its trust loans to ensure the timely repayment of bonds and asset-backed securities, the Post reported earlier.
The trust companies include Pingan Trust, Minmetals International Trust and Western Trust, sources said, declining to be identified. Between 6 billion yuan and 7 billion yuan of Shimao’s loans were expected to mature in December and January, they said.
Last month Shimao Group cancelled the sales of 93 flats in Shanghai’s bustling Lujiazui finance and trade zone because of technical issues. Sources said it was because the units had been pledged to trust companies and could not be delivered officially to the buyers.
