SYDNEY - Chinese property developer Shimao Group said on April 8 that China Construction Bank (Asia) had filed a liquidation petition against it in Hong Kong over a financial obligation of HK$1.58 billion (S$272.3 million).
It represented a rare decision by a state-owned bank to take legal action offshore against a mainland developer.
All 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’s Hong Kong-listed shares fell 18.7 per cent to hit an all-time low of 37 Hong Kong cents on April 8. The Hang Seng Mainland Properties Index was down 0.2 per cent.
Shimao said in a stock exchange filing it would “vigorously” oppose the lawsuit and press on with its proposed plan to restructure about US$11.7 billion (S$15.8 billion) of offshore debt, with an aim of cutting it by 60 per cent. The petition has been filed to 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.
China Construction Bank did not respond immediately to a request for comment.
China’s property sector has been in crisis since 2021 after a regulatory crackdown on high leverage among developers triggered a liquidity crunch.
The mainland authorities have not rolled out massive stimulus to support developers, instead adopting a long series of incremental steps aimed at reviving the sector.
“Typically, banks would prefer to work with troubled creditors if they demonstrated willingness and ability to work with banks to come up with a repayment plan,” said KT Capital researcher Fern Wang.
“In this situation, it is very likely China Construction Bank (Asia) is running out of options and thus is seeking the liquidation of Shimao.”
Shanghai-based Shimao is among the many Chinese developers that have defaulted on offshore bonds, after it missed the interest and principal payment for a US$1 billion offshore bond in July 2022. After that missed payment, its entire US$11.7 billion worth of offshore debt is in default.
Shimao in late March laid out detailed debt restructuring terms.
A group of major bond holders has already flagged its opposition to Shimao’s restructuring plans, which sources told Reuters was 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 per cent in creditor value to pass its restructuring proposal. The ad hoc bond holder group holds more than 25 per cent of Shimao’s outstanding US$6.8 billion dollar bonds.
Deutsche Bank was considering taking similar steps against Shimao as China Construction Bank has done, Reuters reported in early March citing sources, after it found the developer’s earlier debt restructuring terms unacceptable.
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 remains weak, but the declines so far in 2024 are not as steep as a year earlier.
Property investment in China fell 9 per cent year on year in the first two months of 2024, compared with a 24 per cent fall in December 2023, National Bureau of Statistics data published in March showed. Property sales by floor area logged a 20.5 per cent slide in January-February from a year earlier, compared with a 23 per cent fall in December 2023.
Shimao’s Hong Kong-traded shares have fallen nearly 37 per cent since the start of 2023, according to London Stock Exchange Group data. REUTERS
