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Chinese developer Shimao’s shares spike 20% on report that it’s selling all its real estate projects

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Pedestrians near the Riviera Garden residential property, developed by Shimao Group Holdings Ltd., in Shanghai, China, on Saturday, Jan. 8, 2022.
Qilai Shen | Bloomberg | Getty Images

Shares of Shimao spiked more than 20% on Monday after Chinese business publication Caixin reported the embattled developer is selling all of its real estate projects, both residential and commercial.

As debt worries within China’s real estate sector mount, developers such as Evergrande have been attempting to sell off their assets in recent months to ease the cash crunch.

The rally marked a turnaround from Friday’s session when Shimao’s stock plunged nearly 17% after Reuters reported it failed to make full repayment on a trust loan.

In a Monday note, ratings giant S&P Global said that default risks in China’s real estate sector will likely escalate in the first quarter of this year, especially if policy doesn’t “meaningfully ease.”

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

The agency said supervision of presales funds remains “very tight.” This means that developers have to retain a large proportion of its cash from property pre-sales, limiting funds that can be used to repay debt maturities.

China’s massive real estate industry has come under pressure as Beijing sought to reduce developers’ reliance on debt in the last two years. That triggered Evergrande’s debt woes, which came to a head in the second half of last year as the most indebted developer in the world finally defaulted.

Those troubles have spread to other developers. An increasing number face 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 total of the sector’s bonds maturing this year is huge, with $40 billion due in the first half of 2022. Of that, 54% represents offshore debt.

Tsang also said developers have multiple payment obligations around the upcoming Lunar New Year, which further complicates cash management.

Payments to construction firms and suppliers before the Lunar New Year holiday in early February will likely take precedence, S&P said, with authorities emphasizing the importance of honoring home deliveries to buyers.

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