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Shimao Group was downgraded to B2 and B- by Moody’s and S&P from Ba3 and B+ respectively. The downgrades comes days after Shimao defaulted on certain trust loan payments. The reasons cited by Moody’s and S&P for the downgrade include its weakening access to funding, large near-term debt maturities and weak liquidity on the back of slow progress on its fundraising/refinancing and uncertainty over the company’s ability to generate new funds. Shimao has sizable debt of around $1.7bn in offshore bank loans and offshore bonds while it has onshore bonds of around RMB 8.9bn ($1.4bn). Its cash position is expected to erode over a prolonged period. Only ~23% or RMB 16.1bn ($2.5bn) of Shimao’s total cash was unrestricted and accessible as of November 30, 2021, while the balance RMB 52.9bn ($8.3bn) was “regulated to some extent”. Its contracted sales are expected to decline significantly over the next 6-12 months due to weak homebuyer confidence and a slowdown in land acquisitions and tight funding conditions, having dropped 32% and 49% YoY in October and November 2021.

In a latest update on the developer, Bloomberg cites intelligence agency REDD reporting that it is in talks with bigger rival China Vanke to acquire some of its assets.

Shimao’s dollar bonds moved higher yesterday after speculation positive developments on its asset disposals – its 3.975% 2023s were up 4.5 points to 45.14 and its 5.2% 2027s were up 3.3 points to 40.05.

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