By Gina Lee

Investing.com – Shares in Shimao Group Holdings Ltd. and its property services on Tuesday, with a deal between two of its units continuing to have a ripple effect.

Shimao shares slid 11.86% to HK$6.24 ($0.80) by 11:37 PM ET (4:37 AM GMT), while shares in Shimao Services Holdings Ltd (HK:) plunged 23.88% to HK$5.42. Shimao Group bonds fell by 3 cents to the dollar.

Although less systemically important to China’s economy than China Evergrande Group (HK:), the company has been on investors’ radars recently. After the company attributed a selloff in its stocks and bonds on Monday to “rumors”, Shimao Services announced after the market close that it conditionally agreed to acquire Shanghai Shimao Co. Ltd., a fellow Shimao Group unit, for CNY1.65 billion yuan ($259.14 million).

Shimao Group told Bloomberg that it hired Cushman & Wakefield to advise on the valuation and that the price took into consideration factors including liquidity and a control premium. However, the connected-party acquisition “not only implies tight liquidity conditions for Shimao but is also a corporate governance red flag.” said JPMorgan Chase & Co. analysts.

The deal’s valuation was higher than usual, suggesting Shimao Group “is essentially transferring the cash from property manager to developer level,” the analysts added, with equity investors increasingly concerned that publicly listed property managers are being used as a “financial tool” by developers that share the same owners.

This deal with Shimao also raises scrutiny of a sector facing liquidity difficulties. It also deflated the previous week’s optimism, when the government’s shift toward pro-economic growth policies helped drive yields on Chinese junk dollar bonds down the most in seven years. The optimism had also helped to counter last week’s defaults by China Evergrande and Kaisa Group Holdings Ltd.