China Developers Tumble on Shimao ‘Red Flag’: Evergrande Update

(Bloomberg) -- Chinese property developer shares and bonds plunged after a deal between units of Shimao Group Holdings Ltd. heightened governance concerns in an industry already grappling with a liquidity squeeze.

JPMorgan Chase & Co. analysts said a connected-party acquisition announced by the developer late Monday “not only implies tight liquidity conditions for Shimao, but is also a corporate governance red flag.” The latest crisis comes as economic activity in China likely slowed in November partly due to the worsening downturn in the property sector.

Shimao’s shares sank 20% Tuesday, their biggest drop ever, after plunging 12% a day earlier. The property firm’s dollar and yuan bonds also tumbled again, pushing down other Chinese high-yield notes with them. A gauge of property developer stocks fell to the lowest since early 2017, and China Evergrande Group’s shares dropped as much as 9.3% to a record low.

Key Developments:

• What’s Next for China Evergrande, Crushed by Debt: QuickTake
• China Developers Sink as Shimao Deal Stokes Governance Concern
• Shimao Deal Is ‘Red Flag’ Amid Liquidity Concern, JPMorgan Says
• Evergrande’s Hui Forced to Sell Part of Stake in Defaulted Firm
• Hard Landing in Property Market Would Crater China’s Economy

Shimao: Business as Usual, No Concern on Debt Repayment Ability (9:02 p.m. HK)

Shanghai Shimao Co. said all its business and operation activities are carried out normally and there is no event that would affect its ability to repay its bond principal and interest, according to a company statement issued in the evening. 

Exchange Asks Shimao to Assess Debt Impact, Explain Asset Sale (6:49 p.m. HK)

Shanghai stock exchange asks Shanghai Shimao Co. to “prudently assess” impact from related debt given recent public attention on debt issues of the listed company and controlling shareholder, the bourse says in a statement.

The exchange also asks Shanghai Shimao to justify its planned sale of property management assets to Shimao Services and explain whether the deal will hurt smaller shareholders’ interest. Shanghai Shimao is required to reply to the inquiries before Dec. 22.

Shimao Group Talking to Guotong Trust on Product Extension: 21st (6:39 p.m. HK)

Shimao Group is discussing with Guotong Trust an extension of some products, 21st Century Business Herald reports, citing unidentified people. 

Shimao Group seeks to raise funds for 30m yuan of medium-term notes that will mature Dec. 17 and bond due Jan. 15, the report cites the people as saying.

Chinese ADRs Decline Premarket Amid Property Sector Worries (6:11 p.m. HK)

Shares in U.S.-listed Chinese firms decline anew in U.S. premarket trading as a selloff in the stocks and bonds of Chinese property firm Shimao hits sentiment.

China Junk Bonds Slide Most in Two Months On Record Shimao Drop (5:51 p.m. HK)

Chinese high-yield dollar bonds fell at least 3 cents on the dollar Tuesday, as Shimao plunged by a record, according to credit traders.

That leaves Chinese junk dollar notes set for the steepest drop in two months, according to a Bloomberg index. The securities also fell Monday, snapping a four-day winning streak.

China Property Plunge Worsens as Shimao Deal Raises ‘Red Flag’ (5:41 p.m. HK)

Chinese property stocks sank to a nearly five-year low after a deal between two units of Shimao Group Holdings Ltd. heightened corporate governance concerns in an industry already grappling with a liquidity crisis.

Shares of Shimao Group and its property-services unit both tumbled by the most ever on Tuesday, while a Bloomberg index of property stocks dropped 4.3% to the lowest level since February 2017. A connected-party acquisition announced by the developer late Monday “not only implies tight liquidity conditions for Shimao, but is also a corporate governance red flag,” JPMorgan Chase & Co. analysts wrote as they downgraded both stocks.  

Goldman Sachs Says Chinese Stocks a Bargain With Rout Overdone (5:40 p.m. HK)

China’s battered stocks present a buying opportunity, as most of the headwinds facing the country’s economy are now priced in, according to Goldman Sachs Group Inc.

“Although risks around the Chinese growth outlook remain due to the zero-tolerance Covid-19 policies and regulatory tightening, Chinese equity markets already reflect some of those risks, offer attractive valuations and continue to be underinvested,” Goldman Sachs strategists led by Christian Mueller-Glissmann wrote in a note dated Monday.

Their overweight call echoes that of JPMorgan Chase & Co. strategists, who upgraded China’s stocks this week, saying they expect a “major” rebound in offshore Chinese equities next year.

S&P Withdraws Fantasia Ratings At Issuer’s Request (4:49 p.m. HK)

S&P Global Ratings said today that it has withdrawn its ‘SD’ (selective default) long-term issuer credit rating on Fantasia Holdings Group Co. Ltd. at the issuer’s request.

Shimao Unit Has Bond Repayment Funds (2:31 p.m. HK)

Shanghai Shimao Co. has prepared funds to repay a 4.5% onshore bond due Friday, and it’s able to pay on time, a media representative said in reply to Bloomberg News. 

The note has outstanding principal of 30 million yuan ($4.7 million), according to Bloomberg-compiled data. Shanghai Shimao agreed on Monday to sell property management assets to an affiliate for 1.65 billion yuan.

Shimao Bonds Lead Debt Drop (11:30 a.m. HK)

Chinese high-yield dollar bonds fell as much as 2 cents on the dollar Tuesday morning with Shimao leading declines, according to credit traders.

Shimao’s 4.75% bond due 2022 fell 3 cents to 76.7 cents as of 9:50am in Hong Kong, according to Bloomberg-compiled prices. Its 6.125% note due 2024 dropped 3 cents to 69.1 cents. Both are poised to extend Monday’s drop which was the biggest loss since Nov. 5.

Fantasia Denies Take-Over Reports (11:26 a.m. HK)

Fantasia Holdings Group Co. and its unit Fantasia Investment Holdings haven’t been taken over by creditors as reported by some media outlets, the property developer says in a statement posted on its WeChat account. They didn’t specify the reports.

JPMorgan Cuts Shimao to Underweight (9:56 a.m. HK)

JPMorgan downgraded both Shimao Group and Shimao Services Holdings Ltd. to underweight from overweight, citing “heightened concerns on liquidity.”

There’s been “no new concrete policy” from the Central Economic Work Conference and, while government policies lean toward easing, there’s not a “180-degree change,” analyst Karl Chan wrote in a note.

China Economic Activity Likely Slowed (8:23 a.m. HK)

Economic activity in China likely decelerated in November due to the worsening downturn in the property sector and still subdued consumption.

Growth in fixed-asset investment probably weakened last month, dragged down by sluggish property investment, according to the median estimate in a survey of economists ahead of data due to be released Wednesday morning. 

Amundi Says Crackdown May Boost Funds (7:59 a.m. HK) 

China’s crackdown on the property sector, which has sparked defaults at China Evergrande Group and others, should provide a lift to stocks and bonds as investors shift away from real estate, a top executive at Amundi SA said.

“We are going to see money flowing from real estate investments to capital markets investments,” said Xiaofeng Zhong, chairman of Amundi’s business in the Greater China area. “The government is encouraging funds flowing into the financial market.”

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