China’s Property Market Struggles Persist as Shimao Group Faces Failed Auction and Sino-Ocean Group Sees Bond Decline

• 8 July 2023
• International News
• 1627 Views

The challenges gripping China’s property market continue to intensify, with alarming developments emerging in the country’s ongoing real estate debt crisis. Shimao Group Holdings Ltd., a defaulting developer, experienced a setback as a $1.8 billion project failed to attract a buyer at a forced auction, even with a significant discount, according to Yahoo Finance.

In parallel, Sino-Ocean Group Holding Ltd. witnessed a decline in its bonds after revealing its engagement with major shareholders to address its debt burden. These developments underscore the persisting impact of the real estate crisis on China’s economy, dampening markets and exacerbating concerns across various sectors, including high-yield bonds and commodities.

The sluggish recovery of the housing market has left investors disappointed and projected recovery timelines seem more protracted than previously anticipated. Anitza Nip, Head of Fixed Income Research for Asia at Union Bancaire Privee, remarks on the market’s growing frustration, stating, “The recovery path appears to be even longer than what the market had initially anticipated earlier this year.”

Shimao Group’s failed auction of its Shenzhen land portfolio poses further obstacles to its debt restructuring process. The property developer acquired the land in 2017 for a record-breaking 24 billion yuan ($3.3 billion) and intended to develop a landmark complex featuring a 500-meter skyscraper. However, the project faced setbacks when the company missed payments on high-yield trust products used for financing. Citic Trust Co. subsequently seized the asset and initiated legal action against Shimao’s unit, exacerbating the challenges faced by the developer.

Simultaneously, concerns over the industry-wide liquidity crunch extend to state-backed developers, as evidenced by Sino-Ocean Group’s declining bonds and engagement with insurers China Life Insurance Co. and Dajia Life Insurance Co. A holistic risk mitigation plan is being discussed, further highlighting the magnitude of the liquidity squeeze impacting the sector.

As China’s housing market slump persists, expectations grow for the government to implement additional stimulus measures. However, the support measures introduced thus far have been limited, exerting pressure on developers grappling with mounting debts. The restructuring process remains slow, contributing to investor concerns surrounding individual credit risks and the broader sector’s stability.

• Analysis