CCB Asia's winding-up petition left for Shimao to run out of time

The repayment risks of credit bonds, syndicated loans, and multilateral loans of real estate enterprises are being exposed at the bank level, and the only thing banks can do at present is to promote negotiations through litigation.

On April 5, China Construction Bank (Asia) Corporation Limited ("CCB Asia") filed a complaint with the High Court of Hong Kong against Shimao Group (00813. HK) with financial obligations amounting to approximately HK$1,579.5 million. On the morning of April 8, Shimao Group's share price fell by more than 12%. On the same day, Shimao Group closed at HK$0.37, down 18.68%.

In the past six months, CCB Asia has filed a petition for the winding-up of real estate enterprises with the High Court of Hong Kong more than once, but this time it concerns Shimao Group, a former 100 billion real estate company. On March 14, Shimao Group transferred the equity and debt rights of Shenzhen Pingshan Shimao Plaza for about 246 million yuan, and on March 25, it threw out the first version of the debt restructuring plan, including short-term tools, long-term tools and other options.

Since the second half of 2023, CCB Asia has successively filed winding-up petitions against a number of mainland real estate companies, including Helenbergh, Dafa Real Estate, Jiayuan International, DXN China, Shimao Group, etc., among which DXN China has the largest amount of investment, but these petitioned liquidation real estate companies have basically raised rebuttal opinions.

Regarding the petition for liquidation, Shimao Group stated that the petition did not represent the common interests of all foreign creditors and other related parties. In order to safeguard the interests of all parties, Shimao Group will firmly oppose the winding-up petition and continue to promote the process of offshore debt restructuring to maximize value.

Yan Yuejin, research director of the E-House Research Institute, pointed out that to a certain extent, liquidation is a strategy for investors to increase their right to speak, exert pressure on insurance companies, and prevent corporate shareholders from operating in the dark, and is an important mechanism to safeguard investors' own creditor's rights and interests.

Shimao is full of challenges

Not long after the release of Shimao Group's restructuring plan, it was petitioned for liquidation by CCB Asia, and some analysts believe that this is most likely the result of creditors being dissatisfied with the terms of the restructuring plan. In other words, creditors have doubts about Shimao Group's future solvency.

On March 28, Shimao Group released its 2023 annual performance report. In 2023, Shimao Group's revenue will be 59.464 billion yuan, down 5.68% year-on-year, net loss will be 23.599 billion yuan, an increase of 14.24% year-on-year, and net loss attributable to the parent company will be 21.03 billion yuan, down 2.15% year-on-year. In terms of debt, short-term borrowings within one year amounted to RMB199.408 billion, an increase of 4.2 percent from the beginning of the year, and long-term borrowings amounted to RMB64.556 billion, a decrease of 21.88 percent from the beginning of the year.

In the face of unoptimistic performance and the pressure of creditors, Shimao Group has faced many challenges, but it has not chosen to do nothing. Recently, Shimao Group has launched a method of repaying debts by repaying debts or transferring assets. On February 23, Nanjing Gulou Shimao 52+ was successfully auctioned by Nanjing Gulou District People's Court on the Ali asset platform, with a total construction area of more than 14,000 square meters and a transaction price of 135 million yuan. According to people familiar with the matter, this is an asset of Shimao Group to creditors to pay off debts, and the auction proceeds are ultimately owned by creditors.

Recently, Shimao Group not only transferred Pingshan Shimao Plaza (the second phase is still in the construction stage) to its partner Shenzhen Pingshan Urban Investment for 260 million yuan, but also transferred the commercial land in Quanzhou to Hengchang Real Estate for 285 million yuan.

In addition to accelerating the implementation of the debt restructuring plan and repaying the short-term debt, there is also the winding-up petition filed by CCB Asia. In response to CCB Asia's winding-up petition, Shimao Group stated that in order to protect the interests of its related parties, the Company will vigorously oppose the petition and continue to promote the offshore debt restructuring to maximize the value of its related parties.

How to balance huge losses and debts will be the most important issue for Shimao Group at present. Yan Yuejin pointed out that the liquidation of Shimao Group once again shows that Shimao Group needs to continue to work hard in debt restructuring. It belongs to the enterprise with slightly greater debt pressure among the national real estate enterprises, and it lasts for a long time. Therefore, it is very important to actively respond to the demands of investors and actively coordinate and repair investor relations. Entering the second quarter, there are still cases of enterprises being liquidated, indicating that all localities still need to step up the work of preventing and resolving real estate risks. This also requires enterprises in various localities to continue to do a good job in sales in order to enhance the rhythm or confidence of debt restructuring.

CCB Asia has frequent winding-up petitions

The real estate company was gradually liquidated, and the creditor or creditor client behind it surfaced.

Industry insiders pointed out that CCB Asia's recent winding-up petition action is more due to the trend of industry clearance in addition to risk control.

Through incomplete statistics, the 21st Century Business Herald reporter learned that the list of real estate companies that have been liquidated by individual investors, institutions or banks has exceeded 20 from Fantasia in May 2022 to Shimao Group today. Among them, Xinli Real Estate and Sunshine City have been delisted.

CCB (Asia's financial relationships with some of these real estate companies) are mostly syndicated or bilateral loans, and a few involve US dollar bonds.

On the evening of 21 March, DXN China announced that CCB Asia had filed a winding-up petition against the Company in the High Court of Hong Kong in relation to the unpaid principal amount of US$350 million issued by the Company DEXICN 9.95 12/03/22 (ISIN:XS2262084374) and accrued interest.

It is understood that DXN China is currently seeking legal advice on the appropriate course of action for the petition as a hearing will be held on 5 June this year. The company also stressed that it will take all necessary actions to protect its legitimate rights and the overall interests of the company and its shareholders. At the same time, the Company will endeavour to maintain communication with the Petitioner to resolve the Petition amicably.

If real estate companies want not to be liquidated, the premise is to promote the implementation of debt restructuring plans as soon as possible. From the filing of the winding-up petition to the implementation of the debt restructuring plan of the real estate enterprise, this period is the golden time for the real estate company to save itself, and any real estate company is likely to be unwilling to miss it. This also just shows that the continued efforts of real estate companies are the bottom line of creditors.

Especially in the case of sales of real estate companies falling short of expectations and declining significantly, real estate companies must take a series of measures to deal with cash flow constraints. At present, a number of real estate companies have made it clear that they will not pay final dividends, which may have accelerated CCB Asia's determination to petition for liquidation. In fact, the pressure effect of liquidation on real estate companies is far greater than the recovery of bond principal and interest.

Clear signal

Against the backdrop of risk control from the head office, CCB Asia frequently filed winding-up petitions.

This year's government work report proposes to "promote the steady and healthy development of the real estate market". During the National People's Congress and the National People's Congress, Ni Hong, Minister of Housing and Urban-Rural Development, responded to how the Ministry of Housing and Urban-Rural Development will do a good job in implementation, including, to always adhere to the positioning of "houses are for living, not for speculation", improve the housing supply system of "market + security", establish a housing system of both rental and purchase, improve the whole life cycle management mechanism of housing from development and construction to maintenance and use, promote the sales of existing houses in an orderly manner, support the reasonable financing needs of real estate enterprises of different ownership without discrimination, and Real estate enterprises that have lost their ability to operate should follow the principles of rule of law and marketization, and should go bankrupt and reorganize if they should be reorganized.

Therefore, real estate companies either actively help themselves to deliver and repay debts, or wait for clearance.

It is worth mentioning that in the process of liquidation of these real estate companies, some real estate companies have also been withdrawn due to the rapid speed of debt restructuring. For example, Zhongliang Real Estate and Helenbergh.

On March 19, Zhongliang Holdings announced that it had successfully completed the restructuring of overseas debts after 16 months. The debt restructuring plan was approved by more than 99% of creditors, involving a total of US$1,316 million in principal and accrued interest receivable. On March 25, Zhongliang Holdings announced that the company and the petitioner had filed a joint application with the High Court of Hong Kong to withdraw the winding-up petition. At the hearing on the same day, the High Court agreed to dismiss the winding-up petition against Zhongliang Holdings. As early as 21 November 2022, CCB (Asia) was entrusted with filing a winding-up petition with the High Court of the Hong Kong Special Administrative Region of China in respect of Zhongliang Holdings' US$18.65 million principal amount of outstanding senior notes.

The same is true for the unlisted company Helenbergh. According to the website of the High Court of Hong Kong, Helenbergh and a number of its affiliates have recently received a winding-up petition from CCB Asia, and the hearing date is scheduled for 13 September 2023, and the subsequent hearing date has been postponed twice, the last one on 4 December 2023. In the end, the approval rate of Helenbergh's debt restructuring plan reached more than 80%, and the natural winding-up petition was dismissed.

There are also real estate companies that do not take the usual path. On February 27, Dafa Real Estate announced that on February 26, 2024, CCB Asia was entrusted to file a winding-up petition against Dafa Real Estate and another winding-up petition against Yin Yi Hong Kong Limited, an indirect wholly-owned subsidiary of Dafa Real Estate, in respect of the outstanding principal amount of US$360 million and interest in the outstanding principal amount of US$360 million. In addition to continuing to suspend trading, on March 22, Dafa Real Estate announced the replacement of the chairman of the board of directors and executive directors. Gao Shan, who joined the company in 2020, succeeded Ge Yiyang as an executive director and chairman, and further delayed the publication of the 2022 annual results, the 2023 interim results and the corresponding 2022 annual report and 2023 interim report.

The hearing of Shimao Group is scheduled for June 26 this year, during which there may be back-and-forth, and once the debt restructuring plan moves forward quickly, the winding-up petition may also be dismissed.

Song Hongwei, research director of Tongce Research Institute, pointed out that at present, the possibility of external financing channels for some insuring real estate enterprises is small, the sales market continues to be sluggish, and the pressure on debt repayment is still greater.

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