Shimao jumps on the report that they are selling all their real estate projects

Pedestrians near the Riviera Garden residence, developed by Shimao Group Holdings Ltd., in Shanghai, China, on Saturday, January 8, 2022.

Qilai Shen | Bloomberg | Getty pictures

Shimao shares rose nearly 7% on Monday after the Chinese business publication Caixin reported that the difficult developer was selling all of its real estate projects, both residential and commercial.

As debt concerns in China̵[ads1]7;s real estate sector increase, developers like Evergrande have been trying to sell their assets in recent months to ease the money crisis.

Shimao would be the last to follow. The share has since reduced the rise, but still traded more than 2% higher.

The rally marked a turnaround from Friday’s session when it plunged almost 17% after Reuters reported that it failed to repay a trust loan.

In a Monday note, rating giant S&P Global said the risk of default in China’s real estate sector is likely to escalate in the first quarter of this year, especially if the policy is not “meaningfully eased.”

“A significant number of Chinese developers are still facing downward pressure and struggling with tight liquidity,” said S&P Global Ratings credit analyst Ricky Tsang.

The agency said oversight of pre-sales funds remains “very tight.” This means that developers must keep a large proportion of their cash from advance sales of real estate, which limits funds that can be used to repay debt maturities.

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China’s massive real estate industry has come under pressure as Beijing sought to reduce developers’ debt dependence over the past two years. This triggered Evergrande’s debt problems, which peaked in the second half of last year when the most indebted developer in the world finally defaulted.

These issues have spread to other developers. An increasing number are facing cash flow problems and have not paid their debt obligations – even relatively healthier developers like Shimao have not been spared.

S&P noted that the sum of the sector’s bonds maturing this year is huge, with $ 40 billion maturing in the first half of 2022. Of that, 54% represents offshore debt.

Tsang also said that developers have more payment obligations around the coming lunar new year, which further complicates cash handling.

Payments to construction companies and suppliers before the Lunar New Year holiday in early February are likely to take precedence, S&P said, with authorities stressing the importance of respecting home deliveries to buyers.

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