Shimao Group’s subsidiary Shanghai Shimao Co., Ltd. (Shimao Co.) recently had its premium land asset, known as “Diwang,” ruled to be used for debt settlement. Shimao Co. had acquired this Diwang property for a staggering 23.9 billion yuan. This news made it to the top search list on Baidu on July 25th.
According to an announcement released by Shimao Co. on July 11th titled “Announcement Regarding the Receipt of the Enforcement Order,” it was revealed that they had received an Enforcement Order from the Beijing Third Intermediate People’s Court. The court decision stated that as the properties involved were part of the same development project by Shimao Co.’s subsidiaries and affiliated companies, the court had decided to dispose of them as a whole through public auctions. Despite two rounds of auctions, no bidders came forward. Following the failure of the second round of auctions, the applicant for enforcement, CITIC Trust, applied to offset the debt owed by Shimao Co. in the 988, 989, and 1141 cases, with a reserved price of 10.435 billion yuan.
The property in question, owned by Shenzhen Shimao New Milestone Industry Co., Ltd., includes land ownership rights and structures in Longcheng Street, Longgang District, Shenzhen. Shimao Co. had acquired this property for 23.943 billion yuan in 2017, setting a record as the second-highest total price in the history of land auctions in Shenzhen.
The Shimao Deep Hong Kong International Center went through two unsuccessful auctions in July 2023 – the first on July 5th for 13.044 billion yuan and the second on November 16th for 10.435 billion yuan, both ending without any bids.
Originally designed to be developed into the Deep Hong Kong International Center, the project on the 12 plots of land in Longcheng Street, Longgang District, was intended to comprise various facilities such as an international conference and exhibition center, a youth cooperation and entrepreneurship center, an international arts center, an international school, a super five-star hotel, intelligent offices, large-scale commercial spaces, and talent apartments, with a planned total investment of 50 billion yuan.
The project officially began construction in March 2018 but faced a liquidity crisis in 2021 after which it was halted, leading to a dispute with CITIC Trust.
Regarding the property being used for debt settlement, Zhang Xiaoduan, Deputy Director of the Research Institute of Dezan Shira & Associates, told the media that the location of the Deep Hong Kong International Center project is not in a mature business district and faces challenges due to its large scale. Both development investment and subsequent operations will be challenging during the real estate market adjustment.
Some industry insiders with a long-standing interest in non-performing assets believe that using assets to offset debts is often a choice made out of necessity for creditors. They are reluctant to take over assets unless it is possible to smoothly recover the principal and interest.
Facing increasing debt pressure, Shimao Co. is scheduled for a liquidation hearing at the end of July.
On March 25th this year, Shimao Group disclosed the terms of a potential foreign debt restructuring. However, shortly after the restructuring plan was announced, Shimao Group faced a liquidation petition.
On April 8th, a statement from Shimao Group announced that China Construction Bank (Asia) Limited had filed a winding-up petition against the company in the Hong Kong High Court, involving financial obligations of around 1.5795 billion Hong Kong dollars.
In response, Shimao Group stated in the announcement that it strongly opposed the petition and would continue to pursue foreign debt restructuring to maximize value for its stakeholders.
The announcement of the winding-up petition triggered a sharp drop in the stock prices of the three “Shimao Group” listed companies (Shimao Group, Shimao Co., Shimao Services), leading to the delisting of Shimao Co. from the domestic stock exchange.
On April 8th, Shimao Co. experienced a 4.55% drop in its stock price, hitting the limit down. Subsequently, its stock price hovered around the one yuan delisting threshold. On April 12th, the price fell below one yuan, and on May 15th, it closed at 0.43 yuan per share for twenty consecutive trading days below one yuan, leading to the Shanghai Stock Exchange’s decision to delist the stock.
As per the Shimao Group’s annual report, the company recorded a net loss of 21.03 billion yuan in 2023, marking three consecutive years of massive losses, with losses of 27.09 billion yuan and 21.49 billion yuan in the preceding two years, respectively.
By the end of 2023, Shimao Group had a total debt of 264 billion yuan, with approximately 199.4 billion yuan due for repayment within the next 12 months. However, its cash reserves (including cash and cash equivalents and restricted cash) stood at only 21.4 billion yuan, falling significantly short of the planned repayment amount of 169.4 billion yuan.
The latest financial report shows that in the first half of 2024, Shimao Group achieved cumulative contract sales of 17.09 billion yuan, a decrease of about 39% year-on-year, covering a total area of 1.3132 million square meters, a decrease of approximately 29.7% year-on-year.
On June 26th, Shimao Group announced that, following a joint request for extension with the petitioner, the liquidation hearing had been postponed by the Hong Kong High Court until July 31, 2024. With less than half a month remaining until the hearing date, “Epoch Weekly” believes Shimao is running out of time.
As of 10:42 on July 25th Beijing time, Shimao Group’s stock price on the Hong Kong stock market was reported at 0.730 Hong Kong dollars per share, with a total market value of 27.72 billion Hong Kong dollars.
Public records show that Shimao Holdings is an international, comprehensive large-scale investment group that has developed over thirty years and has three listed companies – Shimao Group (00813.HK) in Hong Kong, and Shimao Co. (600823.SH) and Shimao Services (00873.HK) in Shanghai.