Chinese state-owned bank seeks liquidation of property developer Shimao

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China Construction Bank has filed a winding-up petition in Hong Kong against property developer Shimao in a rare case of a major state-owned financial institution initiating offshore legal action against a mainland Chinese real estate company.

The petition, which adds to a number of similar cases in the territory against China’s distressed developers, relates to a HK$1.6bn (US$200mn) financial obligation, according to a filing by Shimao to the Hong Kong stock exchange that did not provide further details.

The Shanghai-based company, which defaulted on its offshore debts in July 2022, said it would “oppose the petition vigorously and continue to work towards an offshore restructuring that maximises value for its stakeholders”.

Shimao’s Hong Kong-listed shares fell more than 14 per cent on Monday to an all-time low of HK$0.39.

China’s property sector has been mired in a prolonged slowdown since 2021 that has weighed on construction and the wider economy, as well as forcing waves of developers to default on offshore debts accumulated during an earlier industry-wide boom.

The involvement of a prominent state-owned bank signals a new level of impatience among creditors as a cash crunch for property developers continues to worsen. So far, Beijing has emphasised the need to complete construction projects but stopped short of unveiling any official measures to help developers in difficulty.

Jason Ho, Asia leader at FTI Capital Advisors, which focuses on corporate finance and restructuring in the region, said many big state-backed banks had been involved in offshore lending, but one or two including CCB had been more “aggressive” and taking a more “active approach” to recover their assets.

He added that the winding-up petition was “significant” given the scale of Shimao and with CCB being a well-known name compared with lower-profile creditors who had previously filed comparable suits.

Shimao recorded 2023 revenues of Rmb59bn ($8.2bn), down 5.7 per cent on 2022. Named after a father and son duo who began running the company in 2001, Shimao had outlined a restructuring proposal in late March that included short-term and long-term notes, as well as convertible bonds.

Fellow developers Country Garden and Evergrande have also had winding-up petitions filed against them in Hong Kong, where the property developers have typically listed even though their assets are overwhelmingly in mainland China and subject to a different legal regime.

In January, judge Linda Chan ordered the liquidation of Evergrande’s Hong Kong entity more than two years after its 2021 default set off a wave of similar failures across its peers. The company had failed to work out a restructuring agreement with offshore creditors.

Country Garden, which defaulted in October after it was previously seen as one of China’s safest developers, had a winding-up petition filed against it in Hong Kong in February over a $200mn loan.

It said over the weekend that it had hired Linklaters as its principal legal adviser and would “work with the creditors to explore all feasible options of offshore liability restructuring”.

A hearing for the Shimao case has been scheduled at Hong Kong’s High Court for June 26. China Construction Bank did not immediately respond to a request for comment.

Additional reporting by Cheng Leng in Hong Kong