Chinese developer Shimao defaults on $1 billion bond

(Bloomberg) – Chinese developer Shimao Group Holdings Ltd. missed payment on a $1 billion note due Sunday, its first default on a public bond after months of mounting stress.

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Shimao’s delinquency is one of the biggest dollar payment failures so far this year in China and the company has about $5.5 billion in offshore bonds outstanding. The luxury carmaker’s bonds have shown deep distress levels since the start of the year, with most notes falling to record lows below 15 cents on the dollar after the company missed redeeming a private note .

Shimao, whose signature projects include a five-star hotel built in an abandoned quarry, was once seen as largely immune to the sweeping crackdown that has engulfed bigger peers like China Evergrande Group and Sunac Group Holdings Ltd. has faced growing concerns about its financial health since late last year, with stress in the industry impacting the expansion of the player base.

“The contagion has spread from Evergrande to Sunac and now to Shimao,” Bloomberg Intelligence analyst Kristy Hung said. “It makes us fear that the scale of the debt crisis is beyond the imagination of any market watcher.”

Shimao has also not made any principal payments involving other offshore debt and has been in discussions with creditors while trying to reach “amicable resolutions”, he said in a filing. Hong Kong exchange. If not, “creditors may have the right to demand accelerated repayment” and take enforcement action, according to the company.

There is no grace period for the principal of the company’s $1 billion bond, according to the note’s offering circular seen by Bloomberg News. The builder is one of the biggest issuers of real estate debt in China.

Shimao’s announcement of a default rather than a proposed expansion plan “shows the company’s weak financial position to meet its debt payment schedule and the need for a comprehensive restructuring plan of debt,” said Ting Meng, senior credit strategist for Asia at ANZ Bank China. The default was long overdue after the company missed a private dollar bond payment and delayed payment of onshore debt, it added.

“Due to market uncertainties regarding debt refinancing and generally difficult operating and financing conditions, the group has experienced negative developments in its credit ratings and the occurrence of major non-payments under certain of its its offshore debts,” Shimao said in his filing.

The company said in a separate statement that it sold almost 20 additional real estate projects to raise funds. He also expects to be able to accelerate cash inflows from home sales as the real estate market shows signs of rebounding. Sales of new homes rose about 31% in June from May in 30 key Chinese cities, according to China Real Estate Information Corp.

Meanwhile, Shimao has appointed Admiralty Harbor Capital Ltd. as financial advisor and Sidley Austin as legal advisor to help assess its capital structure, liquidity and options, the automaker said in its trade filing.

Shimao said it received no notice of repayment acceleration from its creditors, but got written support from the majority of its dual-currency term lenders. The lenders also expressed their intention not to take any enforcement action at this stage regarding the financing, according to the filing.

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