Shimao Says Trust Loan Won’t Trigger Demands for Early Repayment

(Bloomberg) -- Shimao Group Holdings Ltd. said it doesn’t expect issues related to a trust unit loan to trigger investor demands for early debt repayment, adding that it plans to speed up asset sales to bolster its balance sheet. The company’s stock and bonds extended declines Friday.

Shimao, the latest Chinese developer under pressure to pay its debt, said it has had no defaults in the open market, according to a filing to the Shanghai stock exchange on Friday.

A Shimao unit defaulted by failing to pay 645 million yuan ($101 million) of a total 792 million yuan due by Dec. 25, according to a notice sent to investors by China Credit Trust Co. Shimao said in its statement Friday that the trust issuer they guaranteed still needs to repay that 645 million yuan.

The news spurred the biggest-ever dollar bond rout of Shimao, the bellwether for financial contagion in China’s embattled property industry. The stock fell as much as 15% in Hong Kong Friday, while its 4.65% yuan bond dropped 13% to 81 yuan. A 4.75% dollar note due in July slumped about 23 cents on the dollar to around 47 cents in Hong Kong late Thursday. 

China’s property industry has been rocked by a string of debt failures by major developers, following a government crackdown on excessive borrowing and speculation in the housing market. Long considered one of the healthier builders, Shimao Group had until recently appeared largely unscathed even as junk-rated rivals including China Evergrande Group and Kaisa Group Holdings Ltd. defaulted. The plunge in Shimao bonds is likely to stoke fears of financial contagion in a sector that accounts for about a quarter of output in the world’s second-largest economy. Shimao had been rated investment grade as recently as November.

China Credit Trust raised funds for Shimao by selling the high-yielding investment product to investors, and also oversees payments from the borrower. Shimao is a guarantor of the trust product, which was originally due in less than three months.

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With assistance from Bloomberg