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Shimao Bonds Rise After Report of Payment Promises

Chinese developer saw sharp falls in its shares and debt earlier this month, triggered by worries over an asset sale and cancelled apartment deals

Shanghai-based Shimao, which has defaulted on a trust loan and extended some asset-backed securities payments this month, has said it would sell properties to lower its debt. Photo: Reuters.


Bonds sold by subsidiaries of Chinese developer Shimao Group Holdings rose broadly in Shanghai on Friday after a report the Chinese developer plans to repay publicly issued debts due this month, even as ratings agency Moody’s downgraded the company.

Shimao told trust firms that it plans to make payments on its publicly issued bonds and interest that are due in the fourth quarter, financial intelligence provider REDD reported.

Hong Kong-listed Shimao also plans to pay migrant workers salaries before the Chinese New Year, REDD said, citing unidentified sources.

The Chinese government has ordered developers to prioritise migrant workers to head off any risk of social unrest caused by non-payment of salaries.

Moody’s downgraded Shimao’s “corporate family rating” to Ba3 from Ba1, saying the group remains on review for further downgrade.

Sales Declining Further

“The rating downgrade reflects Shimao’s increased refinancing risk due to its constrained funding access and sizeable debt maturities over the next 6-12 months,” Celine Yang, a Moody’s vice-president and senior analyst, said.

Moody’s also expects Shimao’s contracted sales will continue to decline, which will further reduce the company’s operating cash flow and, in turn, its liquidity.

“The review for downgrade reflects the uncertainty over the company’s ability to raise new funding, through new borrowing or asset disposals, to manage its refinancing needs in the next 6-12 months,” Yang added.

Chinese developers have been under enormous strain this year as regulators have sought to reduce leverage in the heavily indebted sector with rules capping their ability to issue new debt.

Shimao saw sharp falls in its shares and debt earlier this month, triggered by worries over an asset sale and cancelled apartment deals. The developer’s stock slumped more than 4% in early trading on Friday.

Short-Term Extensions

The developer has asked trust firms for short-term extensions of loans coming due, according to REDD.

It has asked them to be patient and said it expects 10 billion yuan ($1.6 billion) worth of cash to be released from presale escrow accounts from January 1, REDD reported.

“Investor confidence has been eroded on negative news and lower sales targets ,” said Nomura equity analyst Cynthia Chan, who added: “We do not see near-term loan default risks.”

Shimao’s biggest creditor, China Merchants Bank, plans to increase its loan exposure to Shimao – now at 30 billion yuan – and plans to rally financial support for the developer from other lenders, the report said.


  • Reuters, with George Russell




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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.


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