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China’s property developers under legal siege

The angle of attack on China’s struggling property developers has shifted significantly. Under President Xi Jinping’s administration, the Chinese government has adopted a radical approach towards their financial health, employing non-Communist party overseen legal mechanisms.

Evergrande, the largest developer, faced a winding-up order by a Hong Kong court in late January. Joining the fray, Country Garden, a smaller rival, braces for a similar court action from a creditor next month. Moreover, Shimao Group, another major developer, now faces the ire of China Construction Bank (Asia), a subsidiary of one of China’s top five banks, for failing to repay loans amounting to HK$1,579.5 million ($US201.75 million).

The involvement of China Construction Bank (CCB), the second-largest bank in China, signals official approval from the country’s finance ministry. Western analysts view this as a rare move for a state-owned bank to take legal action offshore against a mainland developer.

Meanwhile, Shimao’s stock plummeted by 14% to reach an all-time low following the news. Despite this setback, the company remains resolute, vowing to vigorously oppose the lawsuit and proceed with its proposed $11.7 billion offshore debt restructuring plan, aiming to reduce it by 60%.

Challenges loom ahead for Shimao, as major bondholders express opposition to its restructuring plans due to potential losses and lack of upfront payments. Deutsche Bank considers following CCB’s lead, contemplating legal action against Shimao after rejecting the developer’s earlier debt restructuring terms.

As the legal battles unfold, the fate of China’s property developers hangs in the balance, with implications reverberating both domestically and internationally.

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