Chinese Developer Shimao Defaults on $1 Billion Dollar Bond

(Bloomberg) — Chinese developer Shimao Group Holdings Ltd. Missed payment on a $1 billion dollar note due Sunday, its first default on a public bond after months of mounting stress.

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Shimao’s delinquency is among the biggest dollar payment failures so far this year in China and the firm has about $5.5 billion in outstanding offshore bonds. The luxury builder’s bonds have priced in deep levels of distress since the beginning of the year, with most notes falling to record lows of below 15 cents on the dollar after the firm missed repayment on a private note.

Shimao, whose landmark projects include a five-star hotel built into an abandoned quarry, was once considered largely immune to the sweeping crackdown that has engulfed larger peers like China Evergrande Group and Sunac Group Holdings Ltd. The country’s 14th-biggest developer by contracted sales has faced mounting worries about its financial health since late last year, with stress in the industry taking it toll on a widening set on players.

“The contagion has spread from Evergrande to Sunac and now Shimao,” said Kristy Hung, a Bloomberg Intelligence analyst. “That raises our concerns that the extent of the debt crisis is beyond any market watcher’s imagination.”

Shimao also hasn’t made principal payments involving some other offshore debts and has been in discussion with creditors while trying to reach “amicable resolutions,” it said in a Hong Kong exchange filing. If it can’t, “creditors may have the right to demand acceleration of repayment” and take enforcement actions, according to the company.

There is no grace period for the principal on the firm’s $1 billion dollar bond, according to the note’s offering circular seen by Bloomberg News. The builder is among the largest real-estate debt issuers in China.

Shimao’s announcement of a default rather than an extension plan proposal “shows the company’s weak financial situation to meet itss payment schedule and the necessity for an overall debt restructuring plan,” said Ting Meng, senior Asia credit strategist at ANZ Bank China. The default was well expected after the firm missed a dollar private bond payment and delayed onshore debt payments, she added.

“Due to uncertain marketties over debt refinancing and generally challenging operating and funding conditions, the group experienced negative developments on its credit ratings and the occurrence of principal nonpayments under certain of its offshore indebtedness,” Shimao said in its filing.

The company said in a separate statement it’s sold nearly 20 more property projects to raise money. It also expects to be able to accelerate cash inflow from property sales as the property market shows signs of rebound. New-home sales rose an estimated 31% in June from May in 30 key Chinese cities, according to China Real Estate Information Corp.

Meanwhile, Shimao has appointed Admiralty Harbor Capital Ltd. as its financial advisor and Sidley Austin as its legal adviser to help assess its capital structure, liquidity and options, the builder said in its exchange filing.

Shimao said it hasn’t received any notice of repayment acceleration from its creditors, but has obtained written support from the majority of its dual-currency term loan lenders. Theers also expressed that they don’t intend to take any enforcement action at this stage regarding the financing, according to the filing.

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