By Marc Jones

LONDON (Reuters] – Sharp drops in Shimao Group’s shares, and its debt. These falls were triggered due to worries about an asset sale, cancelled apartment deals and renewed concerns Tuesday over China’s property sector.

Shimao shares, one of China’s top-10 development companies last year, was investment-grade-rated up to a month back and fell 20%. Other stocks fell as well.

The Shanghai Shimoa branch of the company fell 32%. After-hours, the firm issued a statement stating that they were operating normally without significant problems that could affect their ability to pay bond payments.

Concerns were raised by weekend reports that some homebuyers had failed to register to transfer ownership of apartments they purchased in Shanghai. They had been pledged to the trust.

China’s state media CCTV announced Tuesday that the original sales had been “terminated.”

UBS reported in a research paper that they believed this would affect Shimao’s image as well as future sales of contracts, in particular in a market with weaker property prices.

Shimao failed to respond immediately to a Reuters email asking for comments.

It is important to monitor the January bond maturity of the company. “If Shimao fails to pay a bond payment, this will have a negative impact on the sector,” UBS stated. The payment is a 2.5 billion-yuan (392.64 Million) bond due January 15.

Evergrande’s shares fell to a new record low of 7%. Evergrande was at the center China’s recent property collapse.

R&F Properties, whose bonds have been tumbling in recent weeks, also slumped 7.5%. China’s largest developer, Country Garden, dropped 4.5% while Sunac Services plummeted 17% after J.P. Morgan and Shimao downgraded them.

RED FLAG

Shanghai Shimao was causing further concern on Monday, when it announced that its property management business had been sold to Shimao Services (1.7 billion yuan or $267 million).

The sale price is 16 times the unit’s expected price-to-earnings ratio this year, far higher than the average 10-14 times seen in recent M&A deals in the Chinese property sector, analysts at J.P. Morgan said.

The analysts at the investment bank gave Shimao Group an “underweight” rating. This is effectively a recommendation to sell.

Shanghai Stock Exchange issued a statement in which it questioned the sale of property management assets.

UBS believes that Shimao holds a combination of $4.4 billion and $10 billion worth international and local bonds.

Analysts believe that it will prove difficult for the company to refinance these loans if they don’t get international financing support. This is because foreign borrowing has been closed to junk-rated Chinese developers since this year’s problems.

The sector’s troubles have caused home sales to plummet, with around 30% of them falling year-on-year.

($1 = 6.3671 renminbi)