“The state may therefore need to increase its efforts to turn around sentiment.” “Should this weak sentiment cross over to IG-rated private developers, sector sales could collapse, triggering more defaults,” the analysts wrote.

The worry is that a payment failure by Shimao Group could cause a much broader reassessment of risk in the Chinese property sector, driving up funding costs for higher-rated developers and spooking homebuyers who had flocked to the perceived safety of these companies in recent months given the crisis at Evergrande.Ĭhina may be forced to further ease curbs on the real estate sector to prevent developers like Shimao Group from running into financial trouble and limit the risk of social instability, Bloomberg Intelligence analysts Andrew Chan and Daniel Fan wrote in a note on Wednesday. “Evergrande was known to be a highly leveraged entity, but if high quality firms across hospitality, services and development focused on high quality markets such as Shanghai can’t survive this crisis, then global confidence will be permanently lost.” “A collapse of Shimao will be far worse than Evergrande in our opinion,” said Dhiraj Bajaj, head of Asia credit at Lombard Odier. Many of Shimao Group’s bonds are held by investors who have much lower tolerance for defaults than those who dabble in names like Evergrande. Shimao Group, founded by billionaire Hui Wing Mau, is still rated investment grade by Fitch Ratings, though S&P Global Ratings lowered their rating of the firm to junk last month. The crash stands out because bonds of higher-rated developers have mostly weathered the selloff that sent the yield on a gauge of Chinese junk debt soaring above 20%. That view has changed dramatically over the past week as unconfirmed speculation of payment difficulties at Shimao Group sent the company’s bonds tumbling from nearly 90 cents on the dollar to 59 cents as of Wednesday. Long considered one of the industry’s healthier players, Shimao Group had until recently appeared largely immune to the turmoil that led to defaults this month by junk-rated rivals including Evergrande and Kaisa Group Holdings Ltd. has suddenly become the single biggest worry in a Chinese real estate sector with no shortage of things to worry about.

(Bloomberg) - Its balance sheet is less than a third the size of China Evergrande Group’s and it doesn’t even crack the top 10 list of Chinese property companies by sales.īut for many investors, Shimao Group Holdings Ltd.

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