Chinese Real Estate Crisis Worsens With A Major Shanghai Developer Defaults

Another prominent Chinese developer has gone bankrupt, adding to the woes of the world’s second largest economy’s real estate sector.

According to a company filing with the Hong Kong stock exchange, Shanghai-based Shimao Group failed to pay the interest and principal on a $1 billion bond due Sunday. According to the offering contract, the bond had no grace period for the principal.

Shimao’s first missed debt payments on a dollar bond come after the company has been dealing with rising financial difficulty for months.

Since 2020, when Beijing began cracking down on excessive borrowing by developers in an attempt to rein in their huge debt and restrict runaway home prices, China’s real estate sector has been lurching from one crisis to the next.

The troubles grew considerably last fall, when Evergrande, China’s second largest property developer, began trying to acquire funds to repay lenders. With around $300 billion in liabilities, the troubled company is China’s most indebted property developer. Fitch Ratings designated it a defaulter in December.

Shimao Group has a considerable amount of debt maturing in 2022, according to Moody’s assessments earlier this year, including $1.7 billion in bonds owned by overseas investors, 8.9 billion yuan ($1.4 billion) in bonds held by Chinese investors, and “sizable” offshore bank loans.

Shimao, founded in 2001 by entrepreneur Hui Wing Mau, creates large-scale residential projects and hotels throughout the country. It owns Shanghai Shimao International Plaza, one of Shanghai’s largest skyscrapers in the city centre.

In March, the company anticipated that its 2021 net profit would be down approximately 62 per cent from the previous year, owing primarily to the “tough” environment facing the real estate sector. It then postponed the announcement of its 2021 findings, blaming the Shanghai lockdowns.

“Due to the significant changes to the macro environment of the property sector in China since the second half of 2021 and the impact of Covid-19, the Group has experienced a noticeable decline in its contracted sales in recent months, which is expected to continue in the near term until the property sector in China stabilizes,” Shimao said in the filing on Sunday.

The company also stated that it has been working with creditors to seek “amicable arrangements” regarding its failure to make principal payments on other offshore debt. If no deal is reached, creditors may force the corporation to expedite repayments.

Since Evergrande’s bankruptcy, a number of high-profile developers in the country, including Fantasia and Kaisa, have defaulted on their loans.

Beijing’s zero-Covid policy and the faltering economy have worsened the industry’s troubles. To combat mounting Covid instances, China placed many of its largest cities, including Shanghai, under strict lockdown early this year, severely hampering corporate operations.

Beijing-based Sunac China, one of the country’s top developers, blamed the Covid outbreak last month for “seriously” harming its sales in March and April and increasing its cash crisis. Simultaneously, the developer disclosed that it had defaulted on a dollar bond.

According to a poll released on Friday by China Index Academy, a property research agency, prices for new homes in 100 cities fell more than 40% in the first half of this year compared to the same period last year.

The authorities are attempting to stop the bleeding. They have increased attempts to boost home sales by cutting mortgage rates and relaxing home purchase requirements.

Some developers have come up with creative strategies to increase sales, such as accepting grain or garlic as a down payment or offering pigs as a buyer incentive.

Although there are indicators that sales decreased less significantly in June than in prior months, the road to the property sector’s recovery will likely be “very rocky,” according to Nomura analysts in a note released on Monday.

Meanwhile, Evergrande is contemplating a massive debt restructuring plan led by the government. The developer intends to submit its recommendations before the end of this month.

(Adapted from

Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability

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