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Kaisa and units trading suspended as China property debt crisis routs developers' shares

November 6, 2021
real estate

Company has more offshore debt coming due over the next year than any Chinese developer bar embattled China Evergrande Group

Kaisa Group Holdings and three of its units had their shares suspended from trading on Friday, a day after an affiliate missed a payment to onshore investors as China's snowballing property debt crisis jolts other developers.

Shenzhen-based homebuilder Kaisa, which has guaranteed the wealth management product, said in a statement on Thursday it was facing liquidity pressure because of a challenging property market and rating downgrades.

Kaisa and its unit Kaisa Prosperity said in separate exchange filings on Friday that trading in their shares was being suspended pending the release of 'inside information'. The companies did not elaborate.

Reuters reported last month that Kaisa was seeking buyers for its property management unit Kaisa Prosperity and two residential sites in Hong Kong, as it scrambles to meet a wall of debt repayments.

Kaisa's troubles come amid concerns about a broadening 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.

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.

A finance unit of Kaisa had missed a payment on a wealth management product, the developer said on Thursday, and that it was raising funds to ease the pressure by taking measures including speeding up asset sales.

Kaisa is planning to sell 18 of its assets in Shenzhen city, mostly retail and commercial properties, worth a total of 81.8 billion yuan ($12.78bn) by the end of 2022, according to a document seen by Reuters on Friday.

The proceeds will be used to repay the wealth management products. The developer also has 95 urban renewal projects in Shenzhen, valued at 614 billion yuan, which can help replenish its capital after sales upon completion or early disposal.

Media outlet Cailianshe, citing unidentified sources familiar with the matter, reported that state-owned enterprises including China Resources Land were in talks to buy some of Kaisa's urban renewal projects in the southern city.

China Resources did not immediately respond to Reuters request for comment. Kaisa also did not comment.

Kaisa has about $3.2bn in offshore senior notes due in the next 12 months, with the next maturity worth $400 million falling on December 7. It has coupon payments totalling more than $59 million due on November 11 and November 12.

Shares in Hong Kong-listed Kaisa, ranked as China's 25th-largest developer by home sales, and which has a market value of about $1bn, plunged more than 15 per cent on Thursday to an all-time low.

On Friday, a sub-index tracking the mainland property sector fell 2.8 per cent, deepening its losses in the past two weeks to 17.8 per cent. An index of real estate A-shares also fell 2.1 per cent.

Shares of Evergrande, once China's largest property developer and whose debt woes sparked a liquidity crisis across China's $5 trillion property sector, fell 2.5 per cent to their lowest close since September 21.

The company's 11.5 per cent October 2022 bond fell more than 10 per cent to yield above 300 per cent, according to Duration Finance, leading sharp falls across developers' bonds.

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

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

An ETF tracking Asian high-yield dollar bonds slumped nearly 1.5 per cent in early trade, while spreads on Chinese high-yield dollar debt hovered near record highs.

'Kaisa could be another Evergrande,' said Raymond Cheng, head of China research at CGS-CIMB Securities. He said that the companies' woes had intensified market concerns over developers' liquidity conditions.

'Even though the regulators have some easing measures ... it seems that may not be able to help that much,' he said. 'Unless the government has aggressive loosening measures ... we expect to see more and more developers have problems [paying] off their debts.'