China's Healthiest Developer Is Unwell

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Once known as China's healthiest real estate developer - fully compliant with Beijing's debt criteria - the Shimao Group has now taken the same path as Evergrande. 

Zooming In

In 2021, all eyes were peeled on whether Evergrande was able to repay its debt, and how a failure on that front could affect China's economy on the whole. 

But like other real estate developers, Shimao has since revealed its own address in the tower of debt - the penthouse. 

Shimao Group Holdings reportedly defaulted in early January, plus the forecasts for its future income are all looking pretty bleak. Contracted sales for 2021 dropped by 10.4% YoY to 269.11 billion yuan (USD42 billion) and analysts expect sales to drop further over the next 2 years. 

What Now?

Because the folks at Shimao wrote a lot of checks that their investors couldn't cash, Moody’s downgraded its rating on Shimao by two notches, to Caa1 from B2 — both in the “non-investment grade” category. Moody’s outlook on the developer is now negative, post the ratings review that began on Jan. 10.

Is There A Next Step To Resolve This?

Yes. To avoid a total meltdown of the real estate company, the auditors for Shimao’s mainland China subsidiary, Hopson Development Holdings, and China Aoyuan Group all resigned a couple of weeks back.