Shimao Faces Liquidation Threat: as China’s Property Crisis Deepens 

Shimao faces liquidation

Shimao Group (0813.HK), a major Chinese developer, is facing a liquidation lawsuit from China Construction Bank (Asia) over unpaid loans of HK$1.58 billion (US$201.75 million). This marks a rare instance of a state-owned bank taking such aggressive action in the ongoing property downturn.

Why is this important?

  • This case highlights the severity of China’s property crisis, which began in 2021 due to government restrictions on developer debt.
  • Unlike previous defaults by developers like Evergrande and Country Garden, which involved overseas creditors, this lawsuit involves a state-owned bank, raising concerns about potential domino effects.

The aggressive move by China Construction Bank (CCB) suggests that Shimao’s debt restructuring plan ($11.7 billion offshore debt reduction by 60%) might be inadequate. This could be a turning point in the crisis, potentially leading to stricter measures and further developer insolvencies.

Possible Causes of Shimao’s Situation

  • High Leverage: Like many Chinese developers, Shimao might have relied heavily on borrowing before the regulatory crackdown, leaving them vulnerable when liquidity tightened.
  • Failed Restructuring Proposal: The significant creditor pushback against Shimao’s debt restructuring plan could have forced CCB’s hand.

What’s next for Shimao?

  • Shimao intends to fight the lawsuit while pushing forward with its restructuring plan.
  • The outcome likely hinges on their ability to negotiate a more favorable deal with creditors, particularly the major bondholder group.

China’s property market remains weak, despite a slight slowdown in decline compared to 2023. This case is a stark reminder of the ongoing challenges in the sector.