China property liquidation risk heightened by delisting threat, says S&P
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Loading... - Adika Lestari
- 08 Jun 2023
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According to S&P Global Ratings, certain distressed property developers in China are facing the possibility of being removed from the stock exchange, which would limit their options for restructuring and make them more susceptible to liquidation. The turmoil in China's private developer sector began in mid-2021 when Beijing initiated a crackdown on debt, starting with Evergrande Group and subsequently affecting the entire industry.
Property companies in China were prominent issuers of high-yield bonds in Asia, and many of them intend to utilize their listed entities' shares to restructure their offshore debt after defaulting on repayment obligations. The first instance of a property A share being delisted occurred on Tuesday when Sichuan Languang Development was removed from the Shanghai stock exchange. Sinic Holdings was also delisted from the Hong Kong exchange in April.
S&P identified 11 at-risk firms in mainland China, including Shanghai Shimao and Yango Group, with a combined outstanding offshore and onshore bond value of $21 billion. These companies closed either slightly above or below 1 yuan prior to a trading halt on Monday. Shanghai Shimao and Yango have not responded to requests for comment at this time.
S&P's empirical study indicates that in cases of liquidation, investors typically receive only 2-4 cents for every dollar invested, and it results in the termination of jobs, potentially leaving homebuyers with incomplete properties. The delisting of these companies eliminates avenues for Chinese developers to recover and for investors to recoup their investments. Moreover, it discourages parties from pursuing out-of-court restructuring options.
The Shanghai and Shenzhen exchanges delist companies whose shares trade below 1 yuan continuously for 20 days, while the Hong Kong exchange can delist companies that have halted trading for 18 months. China Evergrande Group, the world's most indebted developer, and Shimao Group, both listed in Hong Kong, have been suspended from trading for 14 months.
In its offshore debt restructuring terms, Evergrande provided creditors with various options, including converting a portion of their debt into equity-linked instruments supported by the company and its two Hong Kong listed subsidiaries. However, all trading of these instruments has been halted since March 2022.
