• Deutsche Bank is considering suing Chinese developer Shimao Group for liquidation in Hong Kong, a rare move as the country’s property sector crisis deepens with rising defaults and failed restructuring plans.
• The potential lawsuit adds to the pressure on struggling developers to reach agreements with creditors as the sector faces an uncertain future.

Deutsche Bank is preparing a controversial move – filing a liquidation lawsuit against Chinese developer Shimao Group in Hong Kong. This potential action comes amidst China’s deepening property sector crisis, marked by rising defaults and struggling developers.

Shimao’s Missed Payment Triggers Domino Effect

Shimao, once a top 20 Chinese developer, defaulted on a $1 billion offshore bond in July 2022, pushing its entire $11.7 billion in offshore debt into default territory. Following negotiations, the company presented restructuring terms to creditors in December 2023, proposing a 50% reduction in their investments.

Deutsche Bank Unconvinced by Restructuring Plan

However, Deutsche Bank, a major creditor of Shimao, deemed the proposed debt restructuring unacceptable. The bank is now planning to file a liquidation petition in Hong Kong this month. This move is significant as it would be a rare instance of a large foreign financial institution initiating such action against a Chinese developer.

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Liquidation Petitions on the Rise

Deutsche Bank’s potential lawsuit follows similar petitions filed against other Chinese developers. Notably, China Evergrande, the world’s most indebted property developer, was ordered to liquidate in January 2024, while Country Garden faces a similar petition from another Hong Kong-listed firm.

Crisis in China’s Property Sector

This rise in liquidation petitions reflects the dire situation in China’s property sector, which plunged into crisis in 2021. Stricter regulations on borrowing and a slowing economy led to a liquidity crisis, impacting property sales and prices. Several developers defaulted on their offshore debts, prompting restructuring attempts.

Pressure Mounts on Developers

The increasing number of liquidation petitions, coupled with global financial institutions like HSBC and Standard Chartered facing write-downs due to exposure to the sector, further pressurizes developers to reach acceptable restructuring agreements with creditors.

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Shimao’s Uncertain Future

Shimao was the first major developer to initiate formal debt restructuring negotiations in 2022. While the company proposed a revised plan in December, creditors remain unwilling to accept the offered reductions. This impasse, coupled with Deutsche Bank’s potential lawsuit, casts a shadow over Shimao’s future.

Looking Ahead: Uncertainties and Repercussions

Deutsche Bank’s potential legal action against Shimao remains a developing story. The outcome of the lawsuit, along with the fate of other liquidation petitions, will have significant implications for China’s property sector and the global financial institutions exposed to it.