Shimao Group’s debt woes deepen as offshore restructuring plan faces uphill battle

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Shimao Group Holdings, the Shanghai-based property developer, is in the midst of a challenging financial situation, trying to restructure its offshore debt of US$11.7 billion. The company recently filed a proposal with the Hong Kong stock exchange seeking approval from its offshore creditors for a restructuring plan. This move comes as part of Shimao’s efforts to avoid liquidation and resolve its debt issues.

According to the filing, Shimao has presented its creditors with four options for repayment, including short-term notes, long-term notes, zero-coupon mandatory convertible bonds, and a combination of different securities. However, the company has specified that the aggregate principal amount offered through short-term notes or loans due in six years will not exceed US$3 billion, while the amount allocated to long-term notes or loans due in seven to nine years will not exceed US$4 billion.

Shimao believes that this proposal is a reasonable and realistic solution for compromising its offshore debt, taking into account the expected conditions in the Chinese property market and the company’s cash flow position.

The developer has been facing financial difficulties since missing interest and principal repayments for a dollar bond in July 2022, leading to a default on its entire US$11.7 billion offshore debt. Despite announcing an initial restructuring plan last December, Shimao has been struggling to reach an agreement with its creditors.

To raise cash, Shimao has been selling assets, including putting a US$1.8 billion project in Shenzhen up for auction in July last year. The company hopes that the latest restructuring proposal will help it improve its capital structure, better manage its operations, and deliver long-term value for stakeholders.

Hui Wing Mau, Shimao’s controlling shareholder, who has lent the developer HK$7.8 billion (US$997.3 million), will be repaid with US$600 million of 2 percent 9.5-year bonds plus mandatory convertible bonds.

Moody’s Analytics has warned that the property market in China is unlikely to recover quickly, with households expected to remain cautious and real estate investment, prices, and sales likely to decline further through 2024. While the sector may see a modest rate of growth in 2025, it is unlikely to return to its previous growth trajectory.

(Source: ET Realty | Market Screener | SCMP)

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