Chinese property developer Shimao Group said on Monday that China Construction Bank in Asia had filed a liquidation lawsuit against it in Hong Kong over a financial obligation or loan default of HK$1,579.5 million ($201.75 million). Property developer Shimao liquidation lawsuit filed by China Construction Bank (CCB) represented a rare decision by a state-owned bank to take legal action offshore against a mainland developer.
All of the major legal processes against rival firms such as China Evergrande Group and Country Garden for defaulting on their debts were started by overseas-based creditors.
Shimao liquidation lawsuit
Property developer Shimao said in a stock exchange filing it would “vigorously” oppose the lawsuit. Shimao press on with its proposed plan to restructure about $11.7 billion of offshore debt, with an aim of cutting it by 60%. The petition for Shimao bankruptcy has been filed in the Hong Kong High Court which oversees all liquidation processes in the city.
“The company is of the view that the Petition does not represent collective interests of the company’s offshore creditors and other stakeholders,” Shimao said in the filing.
There were no comments from China Construction Bank.
China’s property sector crisis
China’s property sector has been in crisis since 2021 after a regulatory crackdown on high leverage among developers triggered a liquidity crunch.
Mainland authorities have not rolled out massive stimulus to support developers, instead adopting a long series of incremental steps aimed at reviving the sector.
China’s property developer Shimao is among the many Chinese developers that have defaulted on offshore bonds, after it missed the interest and principal payment for a $1 billion offshore bond in July 2022. After that missed payment, its entire $11.7 billion worth of offshore debt is in default.
Shimao’s debt
Shimao in late March laid out detailed debt restructuring terms.
As per sources, a group of major bondholders has already flagged its opposition to Shimao’s restructuring plans, due to the size of the losses the creditors would face and the lack of upfront payments.
Shimao would require approval from more than 75% in creditor value to pass its restructuring proposal. The ad-hoc bondholder group holds more than 25% of Shimao’s outstanding $6.8 billion dollar bonds.
Deutsche Bank was considering similar actions against Shimao as CCB has done,
That action would have been an unusual case of a large foreign financial firm initiating a liquidation lawsuit against a Chinese developer since the debt crisis began in 2021.
China’s property sector
China’s property sector remains weak but the declines so far in 2024 are not as steep as a year earlier.
Property investment in China fell 9.0% year-on-year in the first two months of 2024, compared with a 24.0% fall in December 2023, National Bureau of Statistics data published in March showed.
Property sales by floor area logged a 20.5% slide in January-February from a year earlier, compared with a 23.0% fall in December last year.
Shimao’s Hong Kong-traded shares have fallen 34% since the start of the year, according to LSEG data.
Shimao shares
Shimao’s Hong Kong-listed shares fell down as much as 8.8% in early trading, while the city’s Hang Seng Index was down 0.5%.
