Shimao Tumbles; Home Presales Under Threat: Evergrande Update
Shimao Group Holdings Ltd. drove Chinese property stocks and bonds lower over growing concerns about its ability to pay its debt.
(Bloomberg) -- Shimao Group Holdings Ltd. drove Chinese property stocks and bonds lower over growing concerns about its ability to pay its debt, renewing concerns about the health of the sector. Private equity firms meanwhile are cooling on the nation’s real estate, while Citigroup Inc. analysts warned of risks ahead even as China pledged to ensure “stability” in the economy next year.
China’s crackdown on housing, which triggered a default at China Evergrande Group and led to a plunge in sales, is calling into question the way freewheeling property developers have financed homes to the masses through the widespread use of presales.
Shimao’s shares dropped 12% to the lowest in almost a decade, while its bonds plunged as much as 9 cents on the dollar. A yuan note tumbled more than 50% before it was suspended. The firm is looking into market rumors over the weekend that caused the selloff, according to an emailed response to queries. A gauge of property developer stocks fell for a second day.
Key Developments:
- What’s Next for China Evergrande, Crushed by Debt: QuickTake
- Evergrande’s Hui Forced to Sell Part of Stake in Defaulted Firm
- Hard Landing in Property Market Would Crater China’s Economy
- China Tries to Manage Global Message on Evergrande Collapse
- Sunac’s Active Funding Exercise May Boost Bonds: Credit Outlook
Shimao Appoints Xie Kun as Executive Director (5:20 p.m. HK)
Shimao Group appoints Xie Kun as an executive director with effect from Monday, according to a filing to HKEX.
Xie, 53, currently is senior vice president of Shimao Group and chairman and CEO of Zhejiang and Central China Regional Corp.
Hui Ka Yan’s 222 Million Shares Released (5:18 p.m. HK)
About 222 million shares in Evergrande that had been pledged by Chairman Hui Ka Yan have been released as of Dec. 10, according to disclosure filing to Hong Kong stock exchange.
Hui’s stake remains at 59.78%
Hui was forced last week to sell 277.8 million shares he had pledged in the company.
BFAM Fund Heads for Loss on China Bets (1:30 p.m. HK)
BFAM Partners’ more than $4 billion hedge fund is heading for the first annual loss in its nine-year history, caught out by the sell-off in China real estate credit.
The BFAM Asian Opportunities Fund has lost more than 10% in the first 11 months of the year, according to people with knowledge of its performance. It dropped about 7.5% in October and another 3.3% in November, they said, asking not to be identified because the information is private.
The fund suffered from selling pressure in Chinese real estate bonds, said three of the people. Katarina Royds, who leads investor relations at BFAM, declined to comment.
Developers Slump as Shimao Spooks Investors (11:33 a.m. HK)
A wave of selling swept through Chinese developers’ bonds and shares after the sudden plunge in a Shimao Group Holdings’ notes renewed worries about the sector.
Shimao’s dollar notes dropped as much as 9 cents on the dollar, with the selloff spreading to other company bonds including Sunac China Holdings Ltd. and KWG Group Holdings Ltd. Trading was halted in six of Shimao’s yuan bonds after they plunged, with one falling more than 50%. A Bloomberg Intelligence stock index of real estate firms slumped 2.8%, led by an 12% drop by Shimao.
The declines broke the buoyant mood that dominated trading last week, when Beijing’s shift toward pro-growth policies helped drive yields on Chinese junk dollar bonds down the most in seven years. Optimism over further easing steps had helped counter the long-anticipated defaults by China Evergrande and Kaisa Group Holdings Ltd.
Evergrande Default Calm Masks 2022 Risks (9:10 a.m. HK)
The equanimity in financial markets that greeted the defaults of Evergrande and Kaisa may suggest the crisis in China’s property market is over. Far from it.
While Beijing’s shift toward pro-growth policies helped trigger outsized gains in Chinese high-yield dollar bonds, stocks and the yuan last week, there are plenty of risks ahead as policy makers seek to deflate a real estate bubble without crashing the economy.
China’s property developers remain under pressure from slowing sales and a wall of bond maturities coming due in January, according to Citigroup Inc. analysts. That means credit stress has yet to reach a maximum and weaker firms are likely to default, the analysts said.
Private Equity Firms Plan Cuts Over Property (8:20 a.m. HK)
Private equity investors are cooling on China, pulling back from real estate amid mounting troubles at some of the nation’s biggest developers and with many also planning to cut bets on start-ups.
Among international investors a third will reduce their exposure to Chinese real estate funds over the next three years with none planning an increase, according to a survey by alternative asset manager Coller Capital. When including buyouts, venture, infrastructure, and private credit, there was an even split between increasing or cutting investments in China, Coller said after surveying more than 100 investors.
Scrapped Projects Shatter Market Confidence (8:15 a.m. HK)
Construction cranes stand idle in China’s Yunnan Province, on the easternmost edge of the Himalayas. Building has ground to a halt on Hainan, off the coast of Vietnam, and up in Heilongjiang, along the Russian border.
Across China, tens of millions of square feet of unfinished apartment buildings -- the legacy of a real estate boom gone awry in 2021 -- are derailing countless dreams of owning a home.
In a country where private homeownership was only legalized two decades ago, ordinary Chinese are discovering how quickly fortunes can turn in the housing market. Creeping price declines and plummeting sales in recent months have called into question the way freewheeling property developers have financed homes.
Hard Landing in Property Would Crater Economy (8 a.m. HK)
In 2021, tremors in China’s property sector -- with Evergrande at the epicenter -- rattled markets. In 2022, the risk is those were a precursor to a massive quake. Bloomberg Intelligence’s base case is the government will manage to deflate the bubble at a controlled pace - dragging on the economy. But they don’t rule out a hard landing in the property sector. Given it accounts directly and indirectly for around 20% of GDP, this would pose a serious threat to growth and the financial system.
China Shifts Focus to Economic Stability (7:45 a.m. HK)
China stressed it will aim to keep the economy expanding in a stable manner next year as it looks to counteract the effects of a housing market slump and slower growth.
“Ensuring stability is the top priority for next year’s economic work,” the Communist Party’s top decision makers said at the end of a three-day annual Central Economic Work Conference. The government will “support commercial housing markets to meet residents’ reasonable needs,” according to a report of the meeting on the official wire service Xinhua Friday.
The most important word for economic policy in 2022 is “stability,” Han Wenxiu, a senior economic official of the Communist Party, said Saturday.
Hui Forced to Sell Part of Stake (7:15 a.m. HK)
Hui Ka Yan was once China’s second-richest person, worth $42 billion at his peak in 2017.
Now, the Evergrande founder and chairman is scrambling to keep his embattled property developer afloat, including by tapping his own fortune. That took a blow last week, after he was forced to sell pledged shares in his company.
Hui sold 277.8 million shares, reducing his stake to 59.78% from 61.88%, filings to the Hong Kong stock exchange showed Friday. No transaction value was given, but the shares were worth HK$498 million ($64 million), based on the average price when they were sold this week, according to Bloomberg calculations.
China to Favor Bond Sales for Property: Report (7 a.m. HK)
China is set to make it easier to issue bonds for acquisitions in the property sector, a move that may help cash-strapped developers sell assets.
Regulators will favor the issuance of notes to finance property-related deals, the state-run Securities Times reported, citing a meeting on Friday between the National Association of Financial Market Institutional Investors and developers.
The move comes as some developers struggle to sell assets to raise cash and service mounting debts amid a crackdown on leverage in the industry. With the real estate market slumping, regulators have shown signs of easing in recent weeks, prompting stronger real estate firms to tap the onshore interbank bond market for financing.
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