Shimao Group under liquidation threat for $202 million loan default

China's realty struggle: Shimao Group, a Chinese property developer, finds itself under the shadow of liquidation proceedings following a petition filed by China Construction Bank (Asia). The petition cites a financial obligation amounting to HK$1,579.5 million ($201.75 million).

Debt reduction plan

In response, Shimao Group has stated its firm opposition to the lawsuit and reiterated its commitment to pursue its proposed restructuring plan, aiming to slash approximately $11.7 billion of offshore debt by 60 per cent.

According to a filing with the Hong Kong stock exchange, Shimao stressed its belief that the petition does not adequately represent the interests of its offshore creditors and other stakeholders.

As of now, China Construction Bank has yet to provide any comment on the matter.

Realty sector in turmoil

This development occurs amidst a broader crisis within China's property sector, which has been grappling with challenges since 2021 following regulatory interventions targeting high leverage among developers, leading to liquidity strains.

Unlike offering significant stimulus measures, Chinese authorities have opted for a gradual approach, implementing incremental measures to rejuvenate the sector.

Shimao, headquartered in Shanghai, joins the ranks of several Chinese developers facing defaults on offshore bonds. Its troubles escalated after it failed to meet interest and principal payments for a $1 billion offshore bond in July 2022, subsequently putting its entire $11.7 billion offshore debt in default.

Concerns over restructuring

The company had presented detailed debt restructuring terms in March. However, a significant bondholder group has expressed opposition to these plans, primarily due to concerns regarding the magnitude of potential losses and the absence of upfront payments.

For Shimao to proceed with its restructuring proposal, it requires approval from more than 75 per cent in creditor value. However, an ad-hoc bondholder group, holding over 25 per cent of Shimao's outstanding $6.8 billion bonds, has signalled dissent.

(With Reuters Inputs)