Moody’s downgrades Chinese property developer Shimao as debt troubles drag on

Signage at the Intercontinental Shanghai Wonderland Hotel, developed by Shimao Group Holdings, in Shanghai, China, on Feb. 9, 2022.

Moody's lowered the rating of the Chinese property developer on Wednesday due to expectations that it will be harder to repay investors on time.

Despite a few local government announcements in the last few weeks aimed at encouraging more homebuying, the move reflects ongoing troubles in China's massive real estate sector.

Moody's cut its rating on Shimao to Caa1 from B2 in the non-investment grade category. The ratings agency has a negative outlook on the developer.

It was once considered one of China's healthiest property developers because it had met all of Beijing's requirements on debt. Global investor worries last year were focused on whether Evergrande was able to repay its debt and a potential spillover of China's economy if it failed to do so.

Like other real estate developers, Shimao has revealed its own debt problems.

The company's prospects for future income have fallen after it failed in January. Contracted sales for the year went down by 10.4%.

This year and next, Moody's expects those sales to decline. The lack of funds for paying back investors this year is due to the fact that any cash Shimao has will mostly be used for repaying project-level debt and construction expenses.

At the holding company level, Shimao has large debt maturities that are due or puttable by the end of 2022, including offshore bank loans, offshore bonds, and onshore bonds of around $7 billion, according to the ratings agency.

S&P Global Ratings said last week that the auditors for the mainland China subsidiary of Shimao resigned in January.

Edward Chan, director at S&P Global Ratings, said in a phone interview Monday that resignations are rare and could prevent Hong Kong-listed developers from submitting financial statements in time for the end-of-March deadline.

Chan said that a delay in filing could result in stock trading suspensions.

After months of selling, the Hong Kong-traded shares of Shimao rose in January, but are still down for February. Aoyuan shares ended a months-long sell-off with 10% gains in January, but are down by about 7% this month.

After a 1% decline in January, Hopson shares are down slightly this month.