Shanghai surprise

Shimao sells off crown jewels to repay debts

Shimao Group in Shanghai

Shimao: offloading properties

When the pandemic forced the closure of most of China’s cinemas in 2020, Huayi Brothers was plunged deeper into a cash crisis. To save the day its chairman Wang Zhongjun put up his valuables for sale. These included a Van Gogh painting, a mansion in Hong Kong and even part of his controlling stake in the film studio.

“For the safety of the company, anything can be up for sale,” he said at the time (when cinemas reopened Huayi’s big-budget movie The Eight Hundred became the blockbuster hit of 2020, helping to pull the company back from the brink).

A similar ‘everything must go’ instinct may be on the agenda at Shimao, the property developer. In December, its chairman Xu Rongmao sold his personal 40% stake in a luxury development in Hong Kong for HK$1.04 billion ($134.2 million). The buyer was a joint venture between mainland developer CC Land and Hong Kong-listed CSI Properties. And there were further rumours last week that Xu is ready to dispose of an office building in central London that he personally acquired in 2015.

Shimao, like embattled peers Evergrande, Kaisa and Agile (to name just three of the struggling players in the sector), have been torpedoed by an industrywide cash crunch. Once considered one of the best-performing developers, Shimao has seen its bond prices and credit ratings decline in recent months on concerns over its financial health. It must meet repayments in 2022 of $1.7 billion in offshore bonds and Rmb8.9 billion in domestic paper, says Moody’s, the ratings agency.

In response to the debt crunch the developer last month sold its hotel asset Hyatt on the Bund in Shanghai to state-owned investment firm Shanghai Land Group, which is controlled by the city government. Shimao said in a statement that the price tag was Rmb4.5 billion ($707 million). First opened near the Huangpu riverfront in Hongkou district in 2007, the 33-storey tower hasn’t been contributing much to Shimao’s bottom line, losing Rmb53.1 million in 2020, followed by an estimated Rmb63.8 million in further losses last year as the pandemic dragged on. In addition to the Hyatt on the Bund, the developer is also hunting for buyers for another of its Shanghai hotel properties – the Intercontinental Shanghai Wonderland, a celebrity hotspot.

The Hyatt sale in late January came just after Shimao sold a plot of land on Shanghai’s Huangpu Road to a unit of the Shanghai Municipal State-owned Assets Supervision and Administration Commission for just over Rmb1 billion. Shimao also offloaded its 26.7% stake in Guangzhou Asian Games City to China Overseas, another state-owned developer.

Shimao says it will use the proceeds from the asset sales to pay down debt and fund ongoing company operations. None of its properties are off-limits as it prunes its portfolio to repay borrowings, the developer has promised. “There are some high-quality assets we were reluctant to sell in the past but which are now up for sale. These assets have very little liabilities. Those worth Rmb10 billion can probably return around Rmb5 billion to Rmb6 billion after the loans are paid off,” Xu Shitan, Shimao’s vice chairman, has claimed.

“Including the Guangzhou project, Shimao has announced the sale of three assets within a single month, totalling about Rmb4.6 billion in value. In addition, Shimao says it plans to put more flagship assets in first- and second-tier cities into the market,” reported the Beijing Times. “In the last two years Shimao has gone from ‘buy, buy, buy’ to ‘sell, sell, sell’.”

Given that the buyers of the Shimao assets have been state-owned firms, it begs the question whether they have been directed to bid on the properties concerned. Others query why foreign investors haven’t been more interested in these marquee properties. “Well, these are very good assets with little liabilities. So why would the government want to leave this prime real estate in the hands of foreign buyers, who would also squeeze Shimao on price? And besides, state-owned firms have a lot of liquidity,” one industry veteran told WiC.

There are still major concerns about Shimao’s prospects. But its founder is likely mulling the Chinese proverb that “as long as the green hills remain, there will be no shortage of wood to burn”. The inference: where there’s life, there’s hope, so buy time…

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