Developer Shimao’s fire sale and further rating cuts keep Chinese property on the prowl

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A man walks past a wall bearing the Shimao Group logo, with residential buildings and the Pudong financial district in the background, in Shanghai, China on January 1, 2013. Photo taken on January 1, 2013. REUTERS / Stringer

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  • Shimao puts all residential and commercial assets up for sale – Caixin
  • Evergrande’s onshore bondholders to decide on extension
  • Some Modern Land offshore bondholders require early redemption
  • Yuzhou downgraded by rating agencies due to higher refinancing risk

HONG KONG, Jan. 10 (Reuters) – Shanghai-based developer Shimao has put all of its projects up for sale, local media reported on Monday, and other Chinese real estate companies have suffered credit downgrades, leaving Markets split between hope that a stifling cash crunch will begin to ease and fears of an upsurge in defaults.

Chinese real estate developers face an unprecedented liquidity shortage due to regulatory restrictions on new borrowing, leading to a spate of overseas defaults, credit downgrades and sales of stocks and bonds. promoters.

The liquidity shortage for the sector, which is one of the main contributors to China’s economic output, is expected to intensify in the coming days with a wall of repayment obligations looming in the coming months.

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A glimmer of hope emerges from the steps authorities have taken recently to provide some relief.

China Evergrande Group (3333.HK), the world’s most indebted developer at the center of the industry’s debt crisis, calls for a six-month delay in repayment and coupon payments on a 4.5 billion bond. yuan ($ 157 million). Read more

The outcome of the company’s proposal after a Jan. 7-10 meeting with bondholders is expected Jan. 13 after the developer said in a filing that it extended the voting period.

Read more

Evergrande is struggling to repay more than $ 300 billion in liabilities, including nearly $ 20 billion in offshore bonds deemed to be cross-defaulted by rating agencies last month after missing payments. Read more

“This will be the peak of the payback period and we will see more developers default,” said Kington Lin, managing director of the asset management department at Canfield Securities Limited.

Shimao Group Holdings (0813.HK), which defaulted on a fiat loan last week, has put all of its real estate projects up for sale, including residential and commercial properties, Caixin reported over the weekend. Read more

The developer has reached a preliminary deal with a Chinese state-owned company to sell its Shimao International Plaza Shanghai commercial building for more than 10 billion yuan, according to the report.

The company did not respond to a request for comment.

Daiwa predicted in a research report a vicious cycle of liquidity given recent negative news, even though the company said it was not in default on debt service.

Shimao’s unit, Shanghai Shimao Construction, said on Friday it was in talks with China Credit Trust to resolve a $ 101 million default on a loan. The missed payment would not speed up payment requests in the open bond market, he added.

“We believe that negative publicity will erode the confidence of buyers and investors,” Daiwa said.

“This, in turn, would negatively impact Shimao’s future refinancing activities and contract sales prospects and lead to further deterioration in cash flow and liquidity. “

Moody’s Investors Service on Monday downgraded the Shimao family of companies in the garbage category, citing its “weakened access to finance and large short-term debt maturities” and kept it under review for further downgrade .

Shimao’s shares ended up 19% on Monday, but its bonds due January 2027 were down nearly 20 basis points. A Chinese high yield debt index (.MERACYC), dominated by developer issuers, hit a new low.

INCREASING DEFAULT RISK

The amount of maturing offshore bonds issued by Chinese real estate developers will almost double, from $ 10.2 billion in the fourth quarter of last year to $ 19.8 billion this quarter and $ 18.5 billion the following, according to brokerage firm Nomura.

As the risk of more real estate developers defaulting on their payment obligations has increased, it is hoped that recent government action will help the industry.

Reuters reported last week that China will make it easier for state-backed real estate developers to buy distressed assets from indebted private peers, another step taken by policymakers to avoid a liquidity crunch in the sector. Read more

“The market is looking at how many state-owned companies (state-owned enterprises) will get more M&A loans to help struggling developers,” said Lin of Canfield Securities.

For now, however, more and more developers are affected by credit rating downgrades.

Moody’s and Fitch downgraded Yuzhou Group Holdings Company Ltd (1628.HK) due to increased refinancing risks.

Separately, small developer Modern Land (1107.HK), which defaulted on payment for its 12.85% tickets due October 25, 2021, said in a document Monday that it had received notices from some noteholders demanding the early redemption of their senior notes.

The developer said he was discussing a waiver with these creditors and had appointed financial advisers to formulate a plan. It is also in talks on a $ 1.3 billion restructuring plan for its offshore bonds, the company added.

Modern Land shares, suspended since October 21, fell 40% on Monday to HK $ 0.23, an all-time low.

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Reporting by Clare Jim and Donny Kwok in Hong Kong, Samuel Shen in Shanghai; additional reporting by Marc Jones in London; Editing by Kim Coghill, Shri Navaratnam and Tomasz Janowski

Our Standards: Thomson Reuters Trust Principles.

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