Liquidation suit hits China's Shimao Group over an unpaid $202 million loan

Chinese property developer, Shimao Group is facing a legal challenge as China Construction Bank (Asia) filed a liquidation petition against it in Hong Kong over a financial obligation amounting to HK$1,579.5 million, equivalent to $201.75 million.

This move marks a departure from the norm, as it is unusual for a state-owned bank to initiate legal proceedings against a mainland developer outside China's borders.

The development had a ripple effect through the market, with Shimao's Hong Kong-listed shares dropping by about 8.8 per cent in early trading.

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Shimao Group vehemently opposed the lawsuit while saying that it would proceed with its plans to restructure about $11.7 billion of offshore debt, with the intention of slashing it by 60 per cent.

The company noted that the liquidation petition does not align with the collective interests of its offshore creditors and stakeholders.

The petition now awaits adjudication by the Hong Kong High Court, responsible for overseeing all liquidation processes in the city.

Amidst the tumultuous situation, Shanghai-based Shimao finds itself caught up in other rampant issues within China's property sector.

The industry has been in upheaval since 2021 following a regulatory crackdown on high leverage among developers, triggering a liquidity squeeze.

Unlike previous instances where mainland authorities intervened with massive stimulus measures, the response has been characterised by incremental steps aimed at revitalising the sector.

Shimao's troubles have been complicated by its default on offshore bonds, a tight spot shared by many Chinese developers grappling with financial distress.

In July 2022, Shimao missed interest and principal payments for a $1 billion offshore bond, resulting in its entire $11.7 billion offshore debt being in default.

Despite laying out detailed debt restructuring terms in late March, the proposal faces opposition from a group of major bondholders, citing concerns over potential losses and the absence of upfront payments.

The recent incident indicates the continued uncertainties within China's property market.

Recent data suggests a tentative stabilisation compared to the grim state in the preceding year.

Figures from the National Bureau of Statistics reveal a 9.0 per cent year-on-year decline in property investment for the first two months of 2024, a major improvement from the 24.0 per cent fall recorded in December 2023.

Similarly, property sales by floor area registered a 20.5 per cent decrease in January-February compared to a 23.0 per cent fall in December 2023.

(With inputs from Reuters)