Chinese developer Kaisa unit misses payment, debt worries mount

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FILE PHOTO: A construction site by Chinese property developer Kaisa Group is seen at an area of downtown Shanghai

By David Kirton, Clare Jim and Andrew Galbraith

SHENZHEN, China/HONG KONG (Reuters) -Chinese property developer Kaisa Group Holdings Ltd said on Thursday its finance unit had missed a payment on a wealth management product (WMP), adding to worries about a cash crunch at the debt-strapped company.

Kaisa’s troubles come amid concerns about a deepening liquidity crisis in the Chinese property sector, with a string of offshore debt defaults, credit rating downgrades, and sell offs in the developers’ shares and bonds in recent weeks.

The Shenzhen-based developer, which provides a guarantee for the wealth management product, said in a statement it is facing unprecedented liquidity pressure due to a challenging property market and rating downgrades.

It said it was raising funds to ease the pressure by measures including speeding up asset sales. It is ranked as the 25th largest developer in the country by home sales.

Kaisa has the most offshore debt coming due over the next year of any Chinese developer after embattled China Evergrande Group, which is reeling under more than $300 billion in liabilities.

The worsening health of China’s $5 trillion property sector, a major economic growth driver, is testing Beijing’s resolve to press on with painful structural reforms such as reducing high debt levels in the sector.

Shenzhen regulators will hold a meeting on Friday to discuss liquidity issues at Kaisa and its peer Fantasia, local media Cailianshe reported. Fantasia had defaulted on an offshore bond tranche last month.

Fantasia and Kaisa declined to comment. The Shenzhen central sub-branch of People’s Bank of China (PBOC) could not be reached for comment.

Kaisa senior management including group chairman Kwok Ying Ching spoke to WMP investors in a meeting on Thursday, the developer’s statement said, to discuss payment solutions.

Two investors told Reuters that Kaisa said during the meeting it has a total outstanding 12.79 billion yuan ($2.00 billion) in principal and interest, and it plans to pay it back gradually. But investors have pushed back strongly, they added.

Kaisa did not immediately respond to Reuters questions about its repayment plan.

GRADUAL REPAYMENT

Kaisa, in common with other heavily-indebted Chinese property developers and conglomerates, issues high-yielding WMPs to mostly mom-and-pop investors – a popular way of borrowing that sidesteps stringent government lending restrictions.

Evergrande’s wealth arm, which raised more than 100 billion yuan in the past five years, missed its payments earlier this year, leading to protests by investors in several cities in September who feared they will never get their money back.

Hong Kong-listed shares of Kaisa, which has a market value of about $1 billion, plunged more than 15% on Thursday to an all-time low. Its December 2021 6.5% dollar bond slumped more than 17% to 51.5 cents, yielding over 1,000%, according to Marketaxxess.

Kaisa has around $3.2 billion in offshore senior notes due in the next 12 months, with the next maturity worth $400 million falling on Dec. 7. It has coupon payments totalling over $59 million due on Nov. 11 and Nov. 12.

Kaisa Finance’s headquarters was nearly empty on Thursday morning, with several police vehicles stationed outside the building.

Reuters reported last week that Kaisa is seeking buyers for its Hong Kong-listed property management unit, Kaisa Prosperity Holdings Ltd and two residential sites in the city.

Evergrande narrowly averted a default for the second time last week, but faces another hard deadline on Nov. 10 for more than $148 million in coupon payments that had been due on Oct. 11.

Its unit Scenery Journey has coupon payments totalling more than $82 million due Nov. 6, though the bonds’ terms grant a 30-day grace period on such payments.

LIQUIDITY CRUNCH

Separately, smaller player Yango Group, which is seeking to exchange its dollar bonds to help avoid a default, said it has reached an agreement with investors in China to extend principal payments on asset-backed securities.

Shanghai Shimao Co said it will limit investor participation in seven Shanghai-traded bonds starting Friday. It added it sees no major events that seriously harm its repayment ability.

Investor concerns about the broadening impact of the liquidity crunch sparked heavy selling of other Chinese developers’ bonds in onshore markets on Thursday.

Exchange-traded bonds of onshore units of developers Yuzhou Group and Shimao Group plunged more than 20%, triggering trading halts. Refinitiv data showed dollar bonds from Ronshine China Holdings, Zhenro Properties Group and Guangzhou R&F falling more than 10%.

($1 = 6.3980 Chinese yuan renminbi)

(Reporting by David Kirton in Shenzhen, Clare Jim in Hong Kong, Andrew Galbraith in Shanghai, Cheng Leng and Shuyan Wang in Beijing; Editing by Sumeet Chatterjee, Kim Coghill & Shri Navaratnam)

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