(Yicai) Aug. 12 -- China South City has become the fifth Chinese property developer and the first state-backed one to be ordered by a court into liquidation since the beginning of the ongoing real estate market downturn.

The Hong Kong High Court has ordered South City into liquidation, with the liquidators appointed by the court having already taken full control of the company's assets in various locations, the developer and operator of logistics facilities and commodity trading centers said in a filing later last night.

The other four property developers that have been forced into liquidation since the beginning of the real estate market downturn in 2020 are Sinic Holdings Group, DaFa Properties Group, Jiayuan International Group, and China Evergrande.

South City defaulted on two US dollar bonds in February last year and announced debt restructuring right after. But this January, as the company had not yet released any concrete plan, Citibank International, the trustee of the two US dollar bonds, filed a winding-up petition with the Hong Kong High Court.

South City’s case is a typical one when offshore debt restructuring of Chinese mainland builders remains protracted and unresolved, but courts intervene to accelerate the liquidation process, Huang Lichong, president of Huisheng International Holdings, told Yicai.

"On one hand, this reflects the current situation when real estate developers are facing cash flow exhaustion and their debt restructuring plans have not been endorsed by key creditors," Huang noted. "On the other hand, it shows that courts have lower tolerance for defaulting enterprises using ‘delay tactics.’

"This trend of judicial liquidation has been strengthened after the Evergrande case," Huang believes. The market generally expects more bond issuers to face liquidation pressure, especially small- and medium-sized developers, as well as entities with weak refinancing capabilities and insufficient collateral, he added.

South City was founded in Hong Kong in 2002. It built its first project in Shenzhen, which was once China's largest cross-border e-commerce industrial cluster. Later, the company expanded to other Chinese mainland cities, including Nanning, Xi'an, Zhengzhou, and Chongqing.

In May 2022, Shenzhen Special Economic Zone Construction and Development Group, a capital investment and operation platform under the Shenzhen municipal government, invested HKD1.9 billion (USD242 million) to become South City's largest shareholder with a 29.3 percent stake. The developer used the proceeds to repay debts.

Since then, SEZ Construction and Development has provided various financial support to South City, including acquiring its assets, issuing bridge loans, and helping it sign syndicated loan contracts with multiple banks.

However, all these efforts went in vain, as South City ultimately failed to resolve its debt issues. At the end of last year, the firm’s interest-bearing liabilities totaled HKD30.2 billion (USD3.8 billion), over 60 percent of which were due within one year. Its cash and cash equivalents were just HKD40 million (USD5.1 million).

As a result, auditors issued a disclaimer of opinion on South City's 2024 financial statement.

Editors: Tang Shihua, Futura Costaglione