“All signs show that Shimao is grappling with cash flow problems,” said Yin Ran, a Shanghai-based angel and property investor. “The inquiry and the cancellation of the transactions are bad news to the developer.”

Shimao Group’s shares, which closed at HK$5.53 on Wednesday, have fallen 31.4 per cent in Hong Kong since Monday. Its 4.75 per cent US dollar bond due 2022 slumped to a record low of 59.519 cents to the dollar on Wednesday, according to Bloomberg data.

Meanwhile, Shimao is said to be in discussions with a number of trust companies to extend its trust loans to ensure timely repayment of bonds and asset-backed securities (ABS), the South China Morning Post has learned.

The trust companies include Pingan Trust, Minmetals International Trust, Western Trust, Huaneng Guicheng Trust and Lujiazui International Trust, sources said, declining to be identified.

Between 6 billion yuan and 7 billion yuan of loans are expected to mature in December and January, they said.

“Pingan is likely to agree and Lujiazui is in discussion and possibly will agree too,” one of the sources said, adding that Shimao is trying to prioritise payments of open-market debt including dollar bonds and ABS to avoid lawsuits and credit rating cuts.

Shimao’s financing costs are expected to rise and demand for collaterals will increase if agreements on the loan extensions are reached.

The Shanghai-based developer has laid off employees this year and even earlier, mainly in marketing, sales, engineering and operations, multiple sources said, adding that the lay-offs were as high as 20 per cent in some departments. Many employees have also been reassigned to other departments or cities.

Shimao, China’s 13th largest developer by sales, raked in contracted home sales of more than 300 billion yuan last year. It is relatively steady despite austerity measures imposed by Beijing to rein in the overleveraged property industry.

While it has not crossed any of Beijing’s “three red lines” on leverage, it still faces a liquidity crunch as sales of some of its projects have been suspended.

With Shimao reneging on the transactions of 93 flats, buyers have lodged complaints with authorities, which could taint its reputation.

Shimao acquired those flats from residents about a decade ago and resold them in the past two months. However, the ownership could not be transferred to the new buyers as these flats had already been pledged as collateral to a trust.

The flats were good buys based on the price of 80,000 yuan per square metre, nearly a 20 per cent discount to homes in the same area, according to Xu, a buyer who only gave his surname.

The sale of the homes could have generated revenue of about 400 million yuan for the developer.

03:02

Chinese real estate giants Evergrande and Kaisa continue unloading assets to cover debt

Chinese real estate giants Evergrande and Kaisa continue unloading assets to cover debt

You Liangzhou, owner of Baonuo, a property agency in Pudong, Shanghai, said the move indicated Shimao was desperate for cash.

Hundreds of interested homebuyers flocked to the site to check the condition of the old flats when the sale started in October.

On the sale of the property management business, JPMorgan analysts said in a note on Tuesday that the “connected party transaction not only implies tight liquidity conditions for Shimao, but is also a corporate governance red flag as it is essentially transferring the cash from property manager to developer level”.

“We downgrade both names [Shimao Group and Shanghai Shimao] as we think the concern on liquidity will linger,” they added, noting that the deal’s valuation was higher than usual.