Backaout
Backaout

China’s property problems spread to once-healthy developers like Shimao

0

- Advertisement -


InterContinental Shanghai Wonderland, a luxury hotel developed by Shimao and managed by IHG, opened in 2018 and is pictured here on Oct. 11, 2020.

Costfoto | Future Publishing | Getty Images

BEIJING — One of China’s healthiest real estate developers has reportedly defaulted, a sign of how more pain is ahead for the heavily indebted industry.

Shimao Group shares briefly plunged more than 17% Friday after Reuters reported the property developer failed to make full repayment on a trust loan. A subsidiary of the company subsequently said in a filing it was in talks to resolve the payment. Shares closed more than 5% lower in Hong Kong, while most major developers posted gains for the day.

China’s massive real estate industry has come under pressure as Beijing sought to reduce developers’ reliance on debt in the last two years. Global investors have mostly focused in the last several months on China Evergrande‘s ability to repay its debt and the potential spillover to China’s economy.

In recent months, a few other developers have also started reporting financial strains. But Shimao’s troubles stand out.

“The reason that the market is a bit more worried about this case compared to the other developers that [fell] into trouble [is] because Shimao is considered … a relatively healthy name,” Gary Ng, Asia-Pacific economist at Natixis, said in a phone interview Friday.

He noted that Shimao met all three of Beijing’s main requirements for developers’ debt levels — the so-called “three red lines” policy which places limits on debt in relation to a company’s cash flows, assets and capital levels.

Ng also said the company’s struggles reflected broader pressure for business transformation in the current environment.

Investors increasingly pessimistic

Source: CNBC, news reports

Separately, smaller rival Guangzhou R&F Properties disclosed earlier this week that it didn’t have enough money to buy back a bond. The company attributed the shortfall to a failure to sell assets.

Market sentiment on China’s real estate developers has grown increasingly negative over the last several months, according to Natixis’ proprietary analysis.

Before the broader market started paying attention to Evergrande, the market in June only viewed 15% of developers as negative, the analysis found.

That figure jumped to 35% in December, as Evergrande stopped paying investors on time and more developers began reporting financial difficulties.

More defaults likely

Evergrande defaulted in early December without the market shock investors had worried about a few months earlier. But the overall industry has been in a tougher situation.

“Despite both the central government and some local governments implementing easing
measures, China’s property markets failed to make any material improvement in December; this was especially the case in lower-tier cities,” Nomura analysts said in a Jan. 4 note.

The firm has estimated Chinese developers face $19.8 billion in maturing offshore, U.S.-dollar denominated bonds in the first quarter, and $18.5 billion in the second. That first-quarter amount is nearly double the $10.2 billion in maturities of the fourth quarter, according to Nomura.



www.cnbc.com 2022-01-07 23:52:14

Get real time updates directly on you device, subscribe now.

Comments

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More