China Construction Bank (Asia) has filed a liquidation petition against Shimao Group, in an unusual move from a Chinese state-owned lender against a major property developer that signals discontent among creditors over the company's debt restructuring proposal.
The petition against Shanghai-based Shimao relates to a HK$1.58bn (US$201m) loan and kicks off legal proceedings, making it crucial for the developer to gain support from creditors for the restructuring of around US$11.7bn in offshore notes, bonds and other credit facilities, according to bankers involved in China’s real estate sector.
“While it is surprising to see a top state-owned bank taking such a step, it highlights the discontent among lenders and creditors with the company’s offshore restructuring proposal,” said a Hong Kong-based loan banker. “The liquidation petition could potentially be a means to exert pressure on the developer to reopen negotiations and revise the terms of the restructuring plan.”
Under the proposal, Shimao intends to restructure all of its debt totalling around US$11.7bn, through four proposed options which include bonds, loans and mandatory convertible bonds.
Creditors have until May 31 to agree to the plan, but an ad hoc group of offshore debt holders has opposed the proposal due to steep haircuts and the lack of upfront payments and cash payments in the next four to six years, Reuters reported on March 27.
The first court hearing regarding the liquidation proceeding is set for June 26. Shimao has stated it will consider the need to apply to the High Court of Hong Kong for a validation order at a later stage after taking into account the progress of its offshore restructuring.
The developer said it will “oppose the petition vigorously and continue to work towards an offshore restructuring that maximises value for its stakeholders,” and that the petition does not represent the collective interests of the company’s offshore creditors and other stakeholders.
A restructuring banker away from the deal said, “We are also monitoring the situation. Suing is one thing, but whether CCB wants to push the company into liquidation is another thing."
He said it is possible that CCB, similar to some other bondholders which have sued developers, may simply want to push the borrower to come up with better restructuring terms, and he expects those winding-up petitions to have little impact on the debt restructurings of Shimao or other developers.
While it is uncommon for top Chinese state-owned banks to initiate liquidation proceedings against defaulted developers, this is not the first instance for CCB (Asia).
In March, the bank, as trustee, filed a winding-up petition against Zhejiang-based developer Dexin China Holdings in relation to the non-payment of US$350m 9.95% senior notes due December 2022. The bank took similar action in February against Shanghai-headquartered DaFa Properties and an indirect wholly owned subsidiary, YinYi Holdings (Hong Kong), in relation to US$360m 12.375% senior notes due 2022. Dexin's court hearing is set for June 5, while no date has been announced for DaFa.
These actions align with the latest policy direction from Beijing. While the Chinese government has been ramping up efforts to address the real estate debt crisis, the focus has mainly been on ensuring the delivery of real estate projects, but not the rescue of developers.
On March 9, China’s housing minister, Ni Hong, said that real estate developers that have lost their operating capabilities “should go bankrupt and be restructured”, suggesting that similar legal actions against developers may become more common in future.
Mixed results
The petition against Shimao comes two months after Country Garden Holdings, another crisis-hit developer, faced the same action from a creditor for non-payment of a loan of around US$205m.
A court hearing for Country Garden’s winding-up petition has been scheduled for May 17.
Country Garden said in a stock exchange filing on April 7 that it has engaged Linklaters as its principal legal adviser in respect of the offshore liability restructuring to “facilitate a transparent and constructive dialogue between the company and its offshore creditors”.
It also said a coordination committee of bank creditors and an ad hoc group of bondholders have been formed, and that it is working with these creditor groups and their advisers to put in place information sharing protocols and fee arrangements, and has made constructive feedback on a series of questions regarding due diligence.
Most debt restructurings are moving slowly, but some success and progress has been achieved recently.
On March 20, Shanghai-based developer Zhongliang Holdings announced the successful restructuring of approximately US$1.2bn in offshore debt. A winding-up petition filed by CCB (Asia) in 2022 against the company was dismissed by a Hong Kong court on March 25.
Similarly, Shenzhen-based Logan Group in February saw the dismissal of liquidation petitions against the company and its units, following an agreement reached with a key bondholder group for the restructuring of US$6.6bn in offshore debt. Citicorp International had filed the petitions in November 2022 as trustee of Logan’s 5.75% 2025 bond.
Last month, liquidators for China Evergrande Group, once the biggest property developer in China by sales, hired three law firms to advise on the troubled property giant’s winding-up process.
In late January, the High Court of Hong Kong ordered the liquidation of the company after it had been unable to offer a concrete restructuring plan more than two years since defaulting on its offshore debt of over US$20bn and following several court hearings.
(Additional reporting by Pan Yue)