By Scott Murdoch
(Reuters) – Chinese property developer Shimao Group said on Monday that China Construction Bank (OTC:) (Asia) has filed a liquidation petition against it in Hong Kong over a financial obligation of HK1,579.5 million $ ($201.75 million).
It was a rare decision by a state bank to take offshore legal action against a mainland developer.
All major legal cases against rival companies such as China Evergrande (HK:) Group and Country Garden for defaulting on their debts were taken by overseas-based creditors.
Shimao’s Hong Kong-listed shares fell as much as 8.8% in early trading, while those in the city fell 0.5%.
Shimao said in a statement to the stock exchange that it will “vigorously” oppose the lawsuit and press ahead with its proposed plan to restructure about $11.7 billion in offshore debt, with the goal of cutting it by 60%. The petition was filed with Hong Kong’s High Court which oversees all liquidation processes in the city.
“The company is of the view that the petition does not represent the collective interests of the company’s offshore creditors and other interested parties,” Shimao said in the filing.
China Construction Bank (CCB) did not immediately respond to a request for comment.
China’s real estate sector has been in crisis since 2021, after a regulatory crackdown on high leverage among developers triggered a liquidity crisis.
Mainland Chinese authorities have not launched massive stimulus to support developers, instead adopting a long series of incremental measures aimed at reviving the sector.
Shanghai-based Shimao is among many Chinese developers who have defaulted on offshore bonds, after missing interest and principal payments on a $1 billion offshore bond in July 2022. After that missed payment , its entire offshore debt worth $11.7 billion is at a loss. default.
Shimao defined the detailed terms of the debt restructuring at the end of March.
A group of major bondholders have already signaled their opposition to Shimao’s restructuring plan, which Reuters sources said was due to the scale of losses creditors would face and the lack of upfront payments.
Shimao would require approval of more than 75% of the value of creditors to approve its restructuring proposal. The ad hoc bondholder group holds more than 25% of Shimao’s outstanding $6.8 billion bonds.
Deutsche Bank was considering similar action against Shimao as CCB did, Reuters reported in early March citing sources, after finding the developer’s previous debt restructuring terms unacceptable.
Such action would have been an unusual case of a large foreign financial company filing a liquidation case against a Chinese developer since the debt crisis began in 2021.
China’s real estate sector remains weak, but declines so far in 2024 are not as steep as the previous year.
Real estate investment in China fell 9.0% year-on-year in the first two months of 2024, compared with a 24.0% decline in December 2023, according to National Statistics Bureau data released in March.
Real estate sales by square footage saw a 20.5% decline in the January-February period compared to the previous year, compared to a 23.0% decline in December last year.
According to LSEG data, Hong Kong-listed Shimao shares have fallen 34% since the beginning of the year.
($1 = 7.8289 Hong Kong dollars)