China’s real estate problems have spilled over to once-healthy developers like Shimao
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InterContinental Shanghai Wonderland, a luxury hotel developed by Shimao and managed by IHG, opened in 2018 and is pictured here on October 11, 2020.
Costphoto | Future editions | Getty Images
BEIJING – One of China’s healthiest real estate developers has reportedly defaulted, a sign of suffering ahead for the heavily indebted sector.
Shares of the Shimao Group briefly plunged more than 17% on Friday after Reuters reported the property developer failed to fully repay a loan in trust. A subsidiary of the company later said in a filing that it was in talks to resolve the payment. Shares closed more than 5% lower in Hong Kong, with most of the big developers posting gains for the day.
China’s huge real estate industry has come under pressure as Beijing has sought to reduce developers’ reliance on debt over the past two years. In recent months, global investors have mainly focused on China Evergrande’s ability to repay its debt and the potential fallout on the Chinese economy.
In recent months, a few other developers have also started reporting financial strains. But Shimao’s troubles stand out.
“The reason the market is a little more worried about this matter compared to other developers who [fell] In trouble [is] because Shimao is considered … a relatively healthy name, “Gary Ng, Asia-Pacific economist at Natixis, said in a telephone interview on Friday.
He noted that Shimao meets Beijing’s three main requirements for developer debt levels – the so-called âthree red linesâ policy that places limits on debt relative to cash flow, assets and levels of debt. capital of a company.
Ng also said that the company’s struggles reflected wider pressure to transform the business in the current environment.
Increasingly pessimistic investors
Source: CNBC, reports
Separately, little rival Guangzhou R&F Properties revealed earlier this week that it did not have enough money to redeem a bond. The company attributed the shortfall to a failure to sell assets.
Market sentiment towards Chinese real estate developers has become increasingly negative in recent months, according to Natixis’ exclusive analysis.
Before the wider market started paying attention to Evergrande, the market in June viewed just 15% of developers as negative, according to the analysis.
That figure rose to 35% in December as Evergrande stopped paying investors on time and more developers started reporting financial difficulties.
No more likely faults
Ng of Natixis also highlighted data on fiat loans which indicates that real estate companies have a harder time obtaining financing. Although the total amount of capital in the trust category in China has increased, the share of real estate has increased from 15% at the end of 2019 to 12% in September 2021, he said.
“In the future, [I] wouldn’t be surprised if there were more defaults beyond bonds, beyond loans, different types of products, âNg said.
He said the most likely way to Allaying the concerns of investors in the sector would be the announcement of a capital injection by a state-backed fund.
Evergrande defaulted in early December without the market shock investors worried about a few months earlier. But the industry as a whole has been in a more difficult situation.
âDespite the central government and some local governments that are implementing an easing
measures, Chinese real estate markets failed to improve significantly in December; this was especially the case in lower-ranking cities, âNomura analysts said in a Jan. 4 note.
The company estimated that Chinese developers would face $ 19.8 billion in U.S. dollar-denominated offshore bonds in the first quarter and $ 18.5 billion in the second. That first-quarter amount is nearly double the $ 10.2 billion in fourth-quarter maturities, according to Nomura.
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