By Wei Zhou and Dorothy Ma
(Bloomberg) – Distressed Chinese developer Shimao Group Holdings Ltd. and four units were sued by United Overseas Bank Ltd. in Hong Kong, adding to wider signs of growing investor impatience amid the country’s deepening property debt crisis.
UOB alleged that Shimao and group entities breached the terms of certain loan and guarantee agreements, by allegedly reallocating loans and allocating shares between the entities without the consent of the Singapore bank, according to a writ from the Hong Kong High Court dated July 12.
The charges relate to the terms of a 2017 agreement for UOB and other lenders to provide loan facilities of up to HK$10 billion ($1.3 billion) to the Adventure Group entity Success Ltd. The terms were intended to secure the obligations of the unit, which owns a private residential land development project in the Kowloon area of Hong Kong.
Luxury carmaker Shimao, which ranked China’s 22nd in sales in the first half of this year, was once considered one of the country’s strongest promoters. But it has been trading at deeply distressed levels in the dollar bond market for months now. The company also suffered its first-ever default on a public note earlier this month, when it missed payment on a US$1 billion security.
Shimao is among a growing number of real estate companies whose problems have worsened since last year, amid an industry-wide liquidity crisis triggered by a government crackdown on excessive borrowing and property speculation. which sent defaults to a record.
The developer’s public relations department declined to comment. A UOB spokesperson also declined to comment.
Shimao, whose flagship projects included five-star hotels in Shanghai, was once seen as largely immune to the sweeping crackdown that has engulfed bigger peers like China Evergrande Group and Sunac China Holdings Ltd. But he now faces challenges from several groups of creditors.
The documents setting out the terms of the loan facilities included a so-called equity charge – a kind of pledge – for the 100% stake of another subsidiary Genuine Victory Holding Ltd. in Adventure Success, according to the writ.
UOB alleged that the intercompany loan reallocation, along with the stock allotment that took place on or about May 26 of this year, led to Genuine Victory’s stake in Adventure Success being reduced to approximately 5,000,000. 4% versus 100%.
The bank demanded that the reassignment and allotment of the shares be canceled, among other demands.
—With the help of Emma Dong.
