Another major Chinese real estate firm confronts liquidation lawsuit

Shimao Group, a property giant based in Shanghai, revealed on Monday that it has been served with a liquidation petition by a Chinese state-owned bank. This situation is another example of creditors resorting to legal action to recover debts from struggling developers in China, the world's second-largest economy.

According to a stock exchange filing by Shimao, China Construction Bank (Asia) filed a "winding-up petition" against the company on April 5 in Hong Kong. The petition pertains to a financial obligation of approximately HK$1,579.5 million ($204 million), as stated in the filing.

Shimao is determined to fight against the petition and remains committed to pursuing an offshore restructuring that benefits its stakeholders. The company believes that the petition does not accurately reflect the interests of its offshore creditors and other stakeholders.

Shimao encountered financial difficulties in July 2022 when it was unable to make payments on a $1 billion bond, resulting in a significant drop in the company's shares in Hong Kong. The shares have plummeted by over 14% on Monday, contributing to a total decrease of almost 40% for the year.

The real estate sector in China has faced challenges since 2020 when the government implemented measures to limit excessive borrowing by developers in order to prevent a property market bubble. As a result, numerous Chinese developers have since defaulted on their debts, further impacting the industry.

The industry has become a burden on the economy as it struggles to recover from pandemic lockdowns and other challenges like high youth unemployment and financial strain on local governments.

In January, Evergrande, the most indebted property developer globally and a symbol of China's property crisis, was instructed by a Hong Kong court to undergo liquidation.

The city's High Court has issued a liquidation order for the troubled Chinese real estate giant, Evergrande. This decision was made after the company and its international creditors were unable to reach an agreement on restructuring its huge debt after 19 months of negotiations.

There are concerns about the impact of Evergrande's collapse on investors, as well as the thousands of employees and homebuyers who are eagerly awaiting the completion of their apartments.

Country Garden, another major developer that defaulted on its debt last year,received a liquidation petition in February from a creditor after not repaying a loan.

Editor's P/S:

The recent liquidation petition against Shimao Group exposes the ongoing crisis in China's real estate sector, where developers are struggling to repay their debts amidst government measures to curb excessive borrowing. The petition, filed by a state-owned bank, highlights the increasing pressure on developers as creditors resort to legal action to recover their funds. Shimao's commitment to fighting the petition and pursuing offshore restructuring indicates the desperation of developers to avoid liquidation, while the declining share prices reflect investor concerns about the industry's future.

The liquidation order for Evergrande and the liquidation petition against Country Garden further underscore the severity of the situation. These events raise questions about the stability of the real estate sector and its potential impact on the broader economy. The government's efforts to address excessive borrowing have had unintended consequences, leading to defaults and financial strain on developers. The crisis has implications for investors, homebuyers, and the financial health of local governments, highlighting the need for a balanced approach to regulating the real estate market and supporting economic recovery.