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Shimao Group (0813) causes concern for Chinese property sector

By Mensholong Lepcha

09:26, 16 December 2021

Residential buildings in China
Shimao Group Holdings Ltd's contracted sales will be weaker than in S&P Global Ratings' previous forecast – Photo: Shutterstock

Chinese property developer Shimao Group Holdings saw its dollar bond prices plunge over the week on speculations that the company may be facing a cash crunch.

On Wednesday, the Shanghai Stock Exchange sent a letter to Shimao Group’s mainland-listed unit, Shanghai Shimao, asking for clarity on an CNY1.65bn sale of its property management unit.

It was also reported that Shimao Group will cancel transactions of 93 flats in Shanghai due to technical difficulties, according to the South China Morning Post.

Bond prices drop

The negative news sent Shimao Group’s dollar bond crashing from about 90 cents to 59 cents, on Wednesday, according to Bloomberg data. Over the week, Shimao Group stock has plunged more than 28%.

Shimao Group was considered one of the healthier property developers in China, with Fitch Ratings giving the company’s bond a BBB rating, which is considered investment-grade, in its latest report on the company from September.

Oil - Crude

74.50 Price
-1.560% 1D Chg, %
Long position overnight fee -0.0136%
Short position overnight fee -0.0083%
Overnight fee time 22:00 (UTC)
Spread 0.040


38,856.45 Price
-0.050% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 106.00


2,072.25 Price
+1.760% 1D Chg, %
Long position overnight fee -0.0193%
Short position overnight fee 0.0111%
Overnight fee time 22:00 (UTC)
Spread 0.30


16,001.20 Price
+0.470% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 7.0

However, in early November, S&P Global Ratings had downgraded its long-term issuer credit rating on Shimao to BB+ from BBB, citing “tough business conditions.”

Defaults will rise

“Shimao Group Holdings Ltd's contracted sales will be weaker than our previous forecast given challenging operating conditions in China's property industry. This will hinder the company's deleveraging prospects, in our view,” said S&P Global Ratings.

“Defaults will rise under the shadow of sluggish sales, narrower funding channels, and some developers’ inadequate liquidity management and hidden debt issues. Inability to mobilise their cash balance is also a concern,” according to an S&P Global 7 December report on the Chinese property sector.

In recent weeks, the Chinese central bank has taken measures via banking reserve requirement ratio (RRR) cut and medium-term loans to prop up liquidity in the nation’s banking system to provide much-needed support to the cash-strapped property sector.

Read more : Singapore real estate stocks slump after government curbs

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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