Chinese developer Shimao defaults on trust loan – letter

Chinese developer Shimao Group (0813.HK) has defaulted on a loan after missing a 645 million yuan ($101 million) payment, the lender said in a letter, in the latest sign of distress in China’s property sector.

China Credit Trust Co said in the letter, confirmed by two sources familiar with the matter, that 755 million yuan of the trust loan had been repaid. However, the absence of the remaining payment meant the loan was now in default, it added in the letter to investors in the loan.

Shimao and China Credit Trust Co did not respond to requests for comment.

Separately, smaller rival Guangzhou R&F Properties (2777.HK) said it did not have sufficient funds to buy back a $725 million bond as sales of its assets had not come through as planned.

Chinese developers are facing an unprecedented liquidity squeeze due to years of regulatory curbs on borrowing, causing a string of offshore debt defaults, credit-rating downgrades and sell-offs in developers’ shares and bonds.

The offshore default last month of China Evergrande Group (3333.HK), the world’s most indebted developer with more than $300 billion in liabilities, has exacerbated a debt crisis looming over the world’s second-largest economy.

Shimao had already seen sharp falls in its shares and debt in December, triggered by worries over an asset sale and cancelled apartment deals.

For R&F, it said in a filing late on Wednesday that the funds available to settle its tender offer for an offshore bond were materially less than the $300 million it previously expected, due to continued volatility in the property sector.

Last month, R&F proposed two tender offer options to bondholders of the 5.75% notes , while seeking their consent to extend by six months the maturity of the bond due Jan. 13.

The options were 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 and 24.2% for the second – but it added that it expected to have “materially less” than the $300 million previously anticipated to buy back the bonds.

“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 Jan. 12.

In the document last month, R&F said it would accept tendered notes on a pro rata basis, and any notes not accepted for purchase would be returned to the bondholders. Holders that tendered would also be deemed to have approved the maturity extension.

As of 0935 GMT, the bond was trading at 56.5 cents on the dollar, down from 66.5 overnight, according to data from Duration Finance. R&F’s other international bonds also fell.

Shimao’s bond due July 2022 plunged to 47.625 from 70.6.

Onshore, most of the yuan bonds of the two developers also tumbled, with a Shimao bond due Sept 2022 tumbling 11%.

Shares of Shimao listed in Hong Kong closed down 5.2%. R&F shares gained 2.3%.