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Source: Time Weekly Author: Zhang Yijing

The highly anticipated Shimao Shenzhen-Hong Kong International Center project, which failed to sell twice, has the latest news.

Recently, Shanghai Shimao Co., Ltd. (hereinafter referred to as "Shimao Co., Ltd."), a subsidiary of Shimao Group, issued an announcement stating that it had recently received the "Execution Order" [No. (2022) Jing03 Zhi 1141-1] from the Beijing No. 3 Intermediate People's Court.

The applicant for execution in this case is CITIC Trust Co., Ltd. (hereinafter referred to as "CITIC Trust"); the parties subject to execution include subsidiaries and affiliated companies of Shimao Group, including Shenzhen Shimao New Milestone Industrial Co., Ltd. (hereinafter referred to as "Shenzhen New Milestone"), Shanghai Shimao Construction Co., Ltd., Fujian Shimao Ruiying Real Estate Development Co., Ltd., and Fujian Shimao New Milestone Investment Development Co., Ltd.; the total amount involved in the case is 10.425 billion yuan, accounting for 10.425 billion yuan of Shimao Group'sNet assetsThe proportion is 58.80%.

According to the "Execution Order", the Beijing No. 3 Intermediate People's Court ruled to lift the seizure of the real estate in Longcheng Street, Longgang District, Shenzhen City, which was owned by the debtor Shenzhen Xinlicheng, and cancel the relevant mortgage registration.

At the same time, the above-mentioned real estate and projects under construction shall be delivered to the applicant for execution, CITIC Trust Co., Ltd., and after deducting the execution fee of approximately RMB 10.57 million, the appraisal fee of RMB 1.77 million, and the reserved project funds of RMB 534 million, they shall be used to offset the principal and interest of the debts payable by the executed parties in Cases (2022) Jing03 Zhi 988, 989, and 1141, which are approximately RMB 2.298 billion, RMB 702 million, and RMB 6.893 billion, respectively. The ownership and related rights of the above-mentioned real estate shall be transferred from the time this ruling is served on CITIC Trust.

A reporter from the Times Weekly found out that the real estate owned by Shenzhen Xinlicheng in Longcheng Street, Longgang District, Shenzhen, includes 12 plots of land (10 of which are mortgaged to CITIC Trust), which are part of the assets of the "Shimao Shenzhen-Hong Kong International Center" project (excluding two talent apartment projects).

Two unsuccessful auctions

Since the crisis in the second half of 2021, Shimao Group has sold its high-quality assets several times to recover, including Shanghai Bund Maoyue Hotel, Shanghai Huangpu Road No. 229 plot, Beijing Mingnu Temple plot equity, Guangzhou Asian Games Village project equity, Hong Kong Victoria Harbour project equity, etc. Among them, Shimao Shenzhen-Hong Kong International Center can be said to be one of the few "bottom treasures" in its hands.

In fact, the project has attracted much attention from the market since the land was acquired. In December 2017, Shimao won the Shenzhen Longgang super-large commercial and residential land at a transaction price of 23.943 billion yuan, which was the second highest total land price in Shenzhen's history at the time. The project covers an area of ​​321,900 square meters and has a gross floor area of ​​approximately 1.3645 million square meters.

After acquiring the land, Shimao officially announced that it would build a 700-meter-high skyscraper in the project. Once completed, it will surpass the 632-meter Shanghai Tower and become the "tallest building in China", making it the talk of the town.

According to the overall plan, the Shenzhen-Hong Kong International Center project will be built into a comprehensive project integrating the Shenzhen-Hong Kong International Convention and Exhibition Center, the Shenzhen-Hong Kong Youth Cooperation and Entrepreneurship Center, the Shenzhen-Hong Kong International Performing Arts Center, an international school, a super five-star hotel, smart offices, large-scale commercial buildings, and talent apartments, with a planned total investment of 50 billion yuan.

The project officially started in March 2018. In 2021, after Shimao encountered a liquidity crisis, the project was suspended and disputes with CITIC Trust followed.

Back four years ago, on July 17, 2020, the "CITIC Trust Shenzhen Longgang Financing Collective Fund Trust Plan" was established with a fundraising scale of 8.7 billion yuan; on February 16, 2022, CITIC Trust announced that 5.7 billion yuan of project funds had encountered repayment difficulties; in August 2022, CITIC Trust applied to the Beijing No. 3 Intermediate People's Court for the seizure of 12 pieces of land for a period of 3 years.

JD’s judicial auction platform shows that in July 2023, the Beijing No. 3 Intermediate People’s Court held a judicial auction for 12 plots of land in the Shenzhen-Hong Kong International Center. The auction applicant was CITIC Trust, with a starting price of 13.044 billion yuan and an assessed value of 16.305 billion yuan.

According to the land valuation report, as of April 13, 2023, 6 of the above 12 plots of land have been developed. Among them, 1 plot of land has a construction volume of more than 190,000 square meters, 1 plot has a marketing center, and 4 plots have carried out underground excavation.

However, the result of this auction was not ideal, as no one bid and the auction failed. In November of the same year, the 12 plots of land in the Shenzhen-Hong Kong International Center were auctioned again, with the starting price reduced to 10.435 billion yuan, equivalent to 64% of the assessed price, but the second auction still ended in failure.

After the second auction failed, CITIC Trust applied to use the second auction reserve price of 10.435 billion yuan (minus the execution fees, appraisal fees, and reserved project funds it had advanced) to offset the debts owed by the person subject to execution in Cases No. 988, 989, and 1141 in accordance with the order of mortgage and seizure.

Ultimately, because the reserve price of the second auction could not cover the principal and interest of the debt owed by the debtor in Cases No. 988, 989, and 1141, the Beijing No. 3 Intermediate People's Court agreed to CITIC Trust's request to use the real estate involved in the case to repay the debt.

In this regard, Zhang Xiaoduan, deputy director of the Cushman & Wakefield Research Institute, said in an interview with the Times Weekly that the Shenzhen-Hong Kong International Center project is not located in a mature business district and is huge in size. During the property market adjustment period, it will face challenges in terms of development investment and subsequent continued operations.

In addition, industry insiders who have been paying close attention to non-performing assets have pointed out that in the non-performing asset industry, using assets to repay debts is a helpless choice for creditors. As long as they can successfully transfer and recover the principal and interest, they are unwilling to take over the assets. However, if the creditors have the ability to revitalize the assets, the benefits will far exceed the debt itself.

Shimao will face liquidation hearing at the end of the month

With the court's ruling, the ownership of the Shenzhen-Hong Kong International Center project by CITIC Trust has basically become a foregone conclusion. And for Shimao Group, there is less than half a month left before the crossroads of fate.

On March 25 this year, Shimao Group disclosed the terms of its offshore debt restructuring. According to the restructuring plan, Shimao Group provided creditors with short-term instruments, long-term instruments, and mandatory convertible shares.Bonds, and a combination of different instruments to meet the different preferences of plan creditors.

However, not long after the restructuring plan was released, Shimao Group was filed for liquidation.

On April 8, Shimao Group announced that China Construction Bank (Asia) Corporation Limited (hereinafter referred to as "CCB Asia") has filed a liquidation petition against the company with the Hong Kong High Court, involving the company's financial obligations of approximately HK$1.5795 billion.

Some analysts believe that this is most likely the result of creditors being dissatisfied with the terms of the restructuring plan. In other words, creditors have doubts about Shimao Group's future debt repayment ability.

Regarding the liquidation petition, Shimao Group stated in the announcement that the company strongly opposes the petition and will continue to promote offshore debt restructuring to maximize the value of its stakeholders. The company has been in good faith restructuring discussions with its overseas creditors and promised to continue to actively communicate with overseas creditors on its overseas restructuring. The company encourages all overseas creditors to carefully consider the restructuring plan and support the implementation of the restructuring.

To make matters worse, once the news of the liquidation petition was announced, the share prices of the three listed companies of the "Shimao Group" plummeted, leading to the delisting of Shimao Group, a domestic listed platform.

On April 8, Shimao Group fell 4.55% and hit the lower limit; thereafter, the share price of Shimao Group began to hover around the one-yuan delisting line; on April 12, its share price fell below the one-yuan mark; on May 15, Shimao Group closed at 0.43 yuan per share, and the share price had been below one yuan for 20 consecutive trading days. The Shanghai Stock Exchange decided to delist its shares.

Although compared with Shimao Group, which is listed on the Hong Kong stock market, the performance of Shimao Group is much better, with its share price rebounding more than double from its low point, its own operating conditions are not optimistic.

According to the annual report of Shimao Group, the company's net profit attributable to shareholders of the parent company in 2023 was a loss of 21.03 billion yuan, and it has suffered huge losses for three consecutive years. In the previous two years, it suffered losses of 27.09 billion yuan and 21.49 billion yuan respectively.

As of the end of 2023, Shimao Group's total borrowings were 264 billion yuan, of which approximately 199.4 billion yuan will mature for repayment within the next 12 months. However, the total cash (including cash and cash equivalents and restricted cash) during the same period was only 21.4 billion yuan, and the amount of loans that were not repaid as planned was as high as 169.4 billion yuan.

Regarding the above financial report of Shimao Group, the auditor Zhonghui Anda Accounting Firm said it was unable to express an opinion and predicted that it might not be able to realize assets and repay liabilities in the normal course of operations.

The latest performance announcement shows that in the first six months of 2024, Shimao Group's cumulative contract sales reached 17.09 billion yuan, a year-on-year decrease of about 39%; the cumulative contract sales area was 1.3132 million square meters, a year-on-year decrease of about 29.7%.

On June 26, Shimao Group announced that after the company and the petitioner jointly filed an application for extension, the High Court had postponed the hearing of the petition to July 31, 2024.

There is less than half a month left until the hearing date, and Shimao doesn't have much time left.