China’s property problems spread to once-healthy developers like Shimao
InterContinental Shanghai Wonderland is a luxurious hotel designed by Shimao, managed by IHG. It opened in 2018.
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BEIJING — One of China’s healthiest real estate developers has reportedly defaulted, a sign of how more pain is ahead for the heavily indebted industry.
Shimao GroupAfter Reuters reported that a property developer had failed to repay a trust loan, shares plunged by more than 17% on Friday. In a subsequent filing, a subsidiary stated that it was currently in negotiations to settle the debt. Hong Kong shares closed over 5% higher than the previous day, but major developers saw gains.
China’s huge real estate sector has been under attack as Beijing tried to decrease developers’ dependence on debt over the past two years. In the past few months, global investors have mainly focused on these issues. China EvergrandeThe ability of China to pay off its debts and any potential spillover effects to China’s economy.
A few developers reported financial difficulties in recent months. Shimao is the most notable.
“This is because the market is slightly more concerned than other developers about the case. [fell] into trouble [is]Because Shimao [is] considered…a relatively healthy name,” Gary Ng (Asia-Pacific economist at Natixis) said Friday in a telephone interview.
He noted that Shimao met all three of Beijing’s main requirements for developers’ debt levels — the so-called “three red lines” policy which places limits on debt in relation to a company’s cash flows, assets and capital levels.
Ng said that the struggles of the company were a reflection on the larger pressures for business change in today’s environment.
Source: CNBC news reports
Separately, smaller rival Guangzhou R&F PropertiesThis week, it was revealed that the company didn’t have enough money to buy back a bond.According to the company, this shortfall was caused by a failure in selling assets.
According to Natixis proprietary analysis, market sentiment regarding China’s real-estate developers has become increasingly negative in the past few months.
Analysis revealed that only 15% of Evergrande’s developers were considered negative by the market before Evergrande was made more prominent in the larger market.
This number jumped to 35% when Evergrande stopped paying its investors on time in December and developers started reporting financial problems.
Ng, Natixis’s director of research also pointed to data regarding trust loans which indicated that it is becoming harder for real estate businesses to obtain financing. He said that although China has seen a rise in trust capital, real estate’s share has declined from 15% to 12% by September 2021.
“In the Future, [I]Ng stated that it wouldn’t surprise him if defaults occur in addition to bonds and loans.
The most probable way is to ease investor worries in the sectorIt would include news about capital injections from state-backed funds.
Evergrande declared bankruptcy in December. This was without any of the shocks investors had been anticipating a few months prior. However, the industry overall has faced a more difficult situation.
“Despite both central government and certain local governments applying easing
China’s property markets did not show any improvement during December,” Nomura analysts stated in a Jan. 4-note.
According to the firm, Chinese developers could face $19.8billion in matured offshore bonds denominated in U.S. dollars in the first quarter and $18.5 billion the second. That first-quarter amount is nearly double the $10.2 billion in maturities of the fourth quarter,Nomura.