Shimao Group Holdings, a Chinese real estate developer, was recently reported to be selling all of its residential and commercial real estate projects. The news was first reported by Caixin and cited by Reuters. However, the developer has come forward to dismiss such claims.
The Caixin report claimed that Shimao has been asking agents to find buyers for its properties since late December. The sale was supposed to provide some relief to the cash-strapped developer.
The report stated that Shimao had 34.2 billion yuan ($5.38 billion) of outstanding asset-backed securities (ABS) in total. The company has sought to extend the maturities of two of them due this month. Shimao had also struck a preliminary deal to sell its Shimao International Plaza Shanghai worth over 10 billion yuan ($1.57 billion) to a state-backed entity, Caixin reported.
In a filing at the Hong Kong stock exchange on Jan. 10, Shimao denied these claims.
“The Company has not entered into a preliminary agreement in relation to the disposal of Shanghai Shimao International Plaza… As of the date of this announcement, the Company has no outstanding asset-backed securities due and payable,” the company said in the filing.
However, Shimao did admit that it was planning to sell some of its properties to “reduce the indebtedness of the Group” and was talking with some interested parties regarding the same.
The real estate developer also denied that it had defaulted on a 645 million yuan ($101 million) payment owed to a fund as claimed by a Jan. 6 Reuters report. In the filing, the company says that the debt obligation does not belong to its subsidiaries (called the “Group” in the report).
Instead, two subsidiaries that come under the “Group” have provided “guarantees for the financial obligation of the borrower under the fund.” The borrower and the fund are “in discussion on the repayment arrangement.” It asked shareholders to “not rely on market rumors” while making decisions.
Though Shimao attempted to calm investors with the filing, the company is under extreme duress according to various credit rating agencies. S&P Global Ratings has lowered its assessment of the developer, reducing its credit rating to B-.
“Shimao’s liquidity has significantly deteriorated — the decline is worse than we previously anticipated… We now assess the company’s liquidity to be weak,” S&P said in a statement. Just two months ago, the agency had rated Shimao as investment grade.
On Jan. 10, Moody’s Investors Service downgraded Shimao’s corporate family rating (CFA) from Ba3 to B2. Moody’s stated that the rating remains in review for further downgrade. Shimao has a large number of debt maturities due this year, which includes 8.9 billion yuan ($1.40 billion) worth of onshore bonds and $1.7 billion worth of offshore bonds. The rating agency warned that there is “uncertainty” regarding whether Shimao will be able to use a “significant part of its cash for debt repayment.”
In Oct. and Nov. 2021, Shimao’s contracted sales dropped by 32 percent and 49 percent, respectively, when compared to the same months last year. Declining contracted sales will disrupt cash flow and affect the company’s liquidity, Moody’s warned in a report. The rating agency predicts Shimao’s contracted sales to fall “notably” in the next six to 12 months.
“The rating action reflects our expectation that Shimao’s liquidity risks will be elevated, driven by its weakening access to funding and large near-term debt maturities… The review for downgrade reflects the uncertainty over the company’s ability to generate new funds, through new borrowing or asset disposals, to address all its near-term debt maturities in the coming 6-12 months amid challenging funding conditions,” Celine Yang, a Moody’s Vice President, and Senior Analyst, said in a statement.