The problems of the Chinese real estate sector are expanding
Shimao Group, once considered one of the healthiest real estate developers, has gone default, a worrying sign for this highly indebted industry.
Analysts and markets are concerned as Shimao was regarded as a safe and healthy company.
Shares of Shimao Group plunged more than 17% on Friday after the company was unable to repay a fiduciary loan. A subsidiary of the company said it is in talks to settle the payment. Shares of Shimao in Hong Kong closed the decline of more than 5%.
According to Reuters, China will make it easier for state-funded real estate developers to buy troubled assets of debt-laden individuals, another step by policymakers to avoid a liquidity crisis in the industry. Chinese real estate stocks gained on Friday. Hong Kong-listed state-owned China Overseas Land (0688.HK) was up 9% and state-backed China Resources Land was up more than 7%.
Over the past two years, China’s real estate sector has come under pressure from the Beijing government for years to try to reduce developers’ dependence on debt.
A few months ago it was China Evergrande had failed to pay its billionaire debt, casting shadows on the resilience of the Chinese economy. In recent months, other real estate companies have also reported financial problems.
The case of Shimao is more concerning, however, because the company met all the requirements of the guidelines issued by the government, which placed limits on debt about the company’s cash flows, resources, and capital levels. Shimao is also the builder of the famous InterContinental Shanghai Wonderland which opened in Shanghai in 2018 and is operated by IHG.
Shimao missed paying a 645 million yuan ($ 101 million) installment, according to Reuters.
Meanwhile, competitor Guangzhou R&F Properties also said earlier this week that it did not have enough cash to buy back a bond.
Before the market started paying attention to Evergrande, the market in June only saw 15% of developers as negative.
That figure jumped to 35% in December as Evergrande stopped paying investors on time and more developers started reporting financial difficulties.
According to Nomura analysts, despite government interventions, China’s real estate markets failed to improve substantially in December, especially in lower-tier cities.
Chinese developers will face $ 19.8 billion in offshore bonds in the first quarter and $ 18.5 billion in the second. The amount for the first quarter of 2022 is almost double the $ 10.2 billion of maturities in the fourth quarter of 2021.