Shimao denies reports on extending ABS maturities; in talks to sell assets

Published 12 January 2022, 11:57:06 am

HONG KONG, Jan 12 (IFR) - Shimao Group Holdings has denied media reports that it is in talks to extend the maturities of two asset-backed securities following another round of downgrades by rating agencies, but confirmed it is in talks to sell some assets.

In a filing on Tuesday, the Hong Kong-listed Chinese property developer said it has no outstanding ABSs due and payable.

It also denied a report it had entered into a preliminary agreement to sell Shanghai Shimao International Plaza, but that it is in discussions with potential purchasers and may consider disposing of other properties if the terms and conditions are appropriate to reduce its debt.

Shimao Group also said reports that it has not fulfilled its financial obligations under a fund were incorrect, though it did not specify the fund. It said the borrower under the fund is not one of its subsidiaries, but two of its units have provided guarantees for the borrower's financial obligation. "It is the company’s understanding that the borrower and the fund are in discussion on the repayment arrangement," it said in the filing.

Onshore unit Shanghai Shimao Jianshe said on January 7 that a missed payment on a trust loan will not accelerate payment requests in the public bond market and that it is in talks with China Credit Trust to resolve the issue. It said Rmb645m (US$101m) is still outstanding in relation to the trust loan, of which Rmb155m was supposed to be paid on December 27 and Rmb490m on March 25.

Shimao Group's bonds have been under pressure for some time because of the liquidity squeeze in China's real estate sector and negative headlines on the company. The latest in a series of downgrades in the past few months came on Monday.

Moody's lowered Shimao Group's rating to B2 from Ba3 and said the rating remains on review for a further downgrade, citing elevated liquidity risks.

S&P cut the company's rating to B– from B+ and its senior unsecured notes to CCC+ from B, with all the ratings placed on negative credit watch. This was the rating agency's third downgrade of the company since November.

S&P believes Shimao Group is struggling to move its cash from the project level because of regulatory hurdles and possibly caution from its partners and banks.

Shimao Group has Rmb55bn of debt due in 2022.

Fitch on Tuesday also downgraded Shimao Group's rating and its senior unsecured notes to B–  from BB and put all the ratings on negative watch, following an earlier downgrade on December 17.

"Negative news flow continues to affect market confidence in the company. Shimao's ability to meet the obligations could be challenged if its access to capital and contracted sales weaken significantly," wrote Fitch.

Nomura trading desk credit analyst Iris Chen said the deterioration of Shimao Group’s situation has been quicker than she expected, though she has long been cautious on the company's onshore off-balance sheet debt (over Rmb180bn including Rmb50bn-Rmb60bn of trust loans, according to management  meeting in August 2021) and onshore bond sell-off.

"Although neither of the negative headlines have actually triggered an acceleration of public debt, the news has led to collapsed confidence from onshore financial institutions, which has hindered its financing channels," she wrote in a note. "Shrinking onshore financing channel plus a slowdown of pre-sale proceeds has pushed the company into a vicious cycle on debt management." 

Research firm Lucror Analytics said that any material asset disposal will provide some temporary relief to the developer's liquidity. "That said, it is unclear if the disposals would be sufficient to cover the company’s sizeable off balance sheet debt. Moreover, we believe the asset sales would likely be conducted at below-market prices, and proceeds would be first used to repay asset-level debt," it wrote in a note.

By Carol Chan