Hong Kong-listed shares in China’s Shimao Group Holdings plunged on Friday, while the plummeting price of bonds issued by its flagship unit prompted the Shanghai Stock Exchange to suspend trading.
Shimao shares fell more than 18% in early market movements in Hong Kong. They pared some losses to trade down 7% by early afternoon.
A July 2022 Shanghai exchange-traded bond issued by a unit, Shanghai Shimao, fell more than 25%, triggering a trading pause over what the Shanghai Stock Exchange said was “abnormal fluctuations.”
Another unit, Shanghai Shimao Construction, has proposed extensions on maturities for two asset-backed securities (ABS) due this month totalling 1.17 billion yuan ($183.5 million), three sources with knowledge of the matter told Reuters.
The proposals would see the company repay 10% of the principal in January, 5% each month from February through November, and the remaining 40% in December, the three sources said.
One of the sources said that the company and ABS holders were currently in negotiations, but that the proposals were not likely to meet with approval from holders without credit enhancements.
“If the negotiations are not successful it will trigger cross-default clauses involving other bonds,” the source said.
Bad loans are rising in China’s property sector amid Beijing’s determined effort to force building companies to shed their massive debts and reduce home prices.
Outstanding property loans rose by 8.4% at the end of November compared to the same period last year, the country’s banking regulator said on Thursday.
However, Chinese banks’ overall bad-loan ratio was put at a less troubling level – 1.89% – at the end of November, the regulator said in Beijing.
While the main focus in recent months has been on China Evergrande and its bid to reduce its $300 billion worth of liabilities, many small-medium sized builders have been struggling to overcome tight liquidity conditions in the past few months due to the government’s clampdown on excessive borrowing and speculation in the sector.
R&F Bond Buyback
As well as Shimao, Guangzhou R&F Properties is the latest company to hit trouble. R&F revealed that it does not have sufficient funds to buy back a $725 million bond because sales of assets have not come through as planned.
It said in a filing late on Wednesday that the sum of funds available to settle its tender offer for the offshore bond was less than the $300 million it previously expected, due to continued volatility in the property sector.
R&F sought consent from bondholders of the 5.75% notes last month to extend maturity of the bond due on January 13 by six months, as part of efforts to “improve its overall financial condition.”
The developer also proposed two options under a tender offer – buying back the notes at a 17% discount, or $830 for every $1,000 in principal or buying back at most half of bondholders’ notes in full, both with accrued interest.
R&F said in the filing that 71.7% of the bondholders had tendered for the first option (discounted buyback), and 24.2% for the second – but it expects it has “materially less” than $300 million to buy back all the bond.
“Proceeds from certain asset sales contemplated by the group may fail to materialise by the settlement date,” it said, adding the settlement date has been postponed by two days to around January 12.
In the document last month, the firm said it would accept tenders of notes on a pro rata basis, and any notes not accepted for purchase would be returned to the bondholders. And holders who have tendered would be deemed to have approved the maturity extension.
“Despite the delays in the progress of certain anticipated asset sales, the group is continuing to take active measures to shore up its liquidity position up to the settlement date,” R&F added in the notice on Wednesday.
The developer’s total borrowings at the end of June were 143.4 billion yuan ($22.50 billion), according to its half year financial report.
• Reuters with additional editing by Jim Pollard. This report was updated with further details on Friday January 7.