Kaisa, Units Trading Suspended as China Property Debt Crisis Routs Developers’ Shares

By Reuters
November 5, 2021 Updated: November 5, 2021

HONG KONG/SHANGHAI—Kaisa Group Holdings Ltd. 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 unprecedented liquidity pressure due to 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, citing sources, 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 missed a payment on a wealth management product (WMP), the developer said on Thursday, adding 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 $12.78 billion by the end of 2022, according to a document seen by Reuters on Friday.

Epoch Times Photo
The logo of Chinese property developer Kaisa Group offices in downtown Shanghai, China on Feb. 17, 2015. (Carlos Barria/Reuters)

The proceeds will be used to repay the wealth management products. The developer also has 95 urban renewal projects in Shenzhen, valued at about $96 billion, 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.

Deepening Losses

Kaisa has about $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.

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

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

The company’s 11.5 percent October 2022 bond issued by its unit Scenery Journey fell more than 10 percent on Friday morning to yield above 300 percent, 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 Nov. 10 for more than $148 million in coupon payments that were due on Oct. 11.

Evergrande Community
An aerial view shows the Evergrande Changqing community in Wuhan, Hubei Province, China on Sept. 26, 2021. (Getty Images)

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.

An ETF tracking Asian high-yield dollar bonds fell as much as 1.6 percent, while spreads on Chinese high-yield dollar debt hovered near record highs.

Developers have scrambled to ease short-term liquidity squeezes as they face looming debt repayments and tighter financing conditions.

Yango Group, which earlier this week reached a deal with investors to delay principal payments on asset-backed securities, agreed with investors to extend the payment of its $99.4 million onshore bond due Nov. 19 by one year, two sources familiar with the matter told Reuters on Friday.

“Kaisa could likely be another Evergrande,” said Raymond Cheng, head of China research at CGS-CIMB Securities, adding 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.”

Local authorities in Shenzhen said in a statement on Friday they would strictly implement policies on property market regulation and guard against speculation.

By Andrew Galbraith, Clare Jim, and Donny Kwok