Shimao, a major real estate developer in Shanghai, defaults on its payments

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Shanghai-based Shimao Group has failed to pay interest and principal on a $1 billion bond issue due Sunday, the company said in a filing with the Hong Kong Stock Exchange. According to the offer document, the bond had no grace period for the investor.

China’s real estate sector has lurched from crisis to crisis since 2020, when Beijing began cracking down on excessive borrowing by developers in a bid to curb its high levels of debt and curb runaway property prices.

Trouble escalated significantly last fall when Evergrande — the second-largest real estate developer in China — began scrambling to raise cash to repay lenders. The embattled company is China’s most indebted real estate developer with around $300 billion in debt. In December Fitch Ratings classified it as delinquent.
According to estimates by Moody’s earlier this year, Shimao Group has a large amount of debt maturing in 2022, including US$1.7 billion in bonds held by international investors, 8.9 billion yuan in bonds ( $1.4 billion) owned by Chinese investors and “sizable” offshore bank loans.
An elderly couple walk past a sign in front of Shimao Tower, owned by Shimao Group Holdings Ltd, on Saturday, January 8, 2022. was developed in Shanghai, China.

Founded in 2001 by entrepreneur Hui Wing Mau, Shimao is developing large-scale residential projects and hotels across the country. It owns the Shanghai Shimao International Plaza, one of the tallest skyscrapers in the heart of Shanghai.

In March, the company estimated that its 2021 net income fell about 62% year over year, largely due to the “rough” environment the real estate sector is in. It subsequently delayed the release of its 2021 results, citing the lockdowns in Shanghai.

“Due to the significant changes in the macroeconomic 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 drop in its contracted sales in recent months, which is expected to continue in the short term until the real estate sector recovers stabilized in China,” Shimao said in Sunday’s filing.

The company added that it had tried to find “amicable solutions” with creditors when it came to making capital payments to other offshore companies Fault. In the absence of an agreement, creditors could force the company to speed up repayments.

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 compounded by Beijing’s zero-Covid policy and the slowing economy. China severely locked down many of its major cities – including Shanghai – earlier this year to combat rising Covid cases, severely impacting business activity.

Wheat Down Payments and Free Pigs: How Chinese Developers Are Trying to Sell Homes
Based in Beijing Sunac China, one of the country’s biggest developers, blamed the Covid outbreak for “significant” pain last month its sales in March and April and the further aggravation of its liquidity crisis. At the same time, the developer admitted that he had defaulted on a dollar bond.

On Friday, a survey by the 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 from the same period last year.

Authorities are trying to stem the bleeding. she have stepped up efforts to revive home sales by lowering mortgage rates and relaxing homebuyer regulations. Some developers have come up with imaginative ways to boost sales—from accepting grain or garlic as a down payment to offering pigs as an incentive to buyers.

Although there are signs that June sales fell less dramatically than in previous months, the road to the property sector’s recovery is likely to be “rather bumpy” as Beijing continues to hold on to its zero-Covid approach, analysts at Nomura said in a statement on Monday.

Meanwhile, Evergrande is getting ready a huge government-led debt restructuring plan. The developer plans to present its proposals before the end of this month.