By David Yong and Christopher Langner
(Bloomberg) — Bondholders of Kaisa Group Holdings Ltd. are waiting to hear whether the Chinese developer made a coupon payment on its dollar-denominated notes.
The builder of residential communities and shopping centers was due to pay interest on its $500 million of 10.25 percent
2020 notes yesterday. The $25.625 million semi-annual coupon on the debentures, sold in 2013, is payable every Jan. 8 and July 8, according to the notes’ prospectus. No Chinese developer has defaulted on dollar bonds and Kaisa would be the first, according to Dennis Lee, an analyst at Standard & Poor’s in Hong Kong.
Kaisa already defaulted on a loan last week, triggered by the departure of its chairman, and concern that other Chinese developers will suffer similar payment difficulties are rippling beyond Kaisa’s home base in the southern Chinese city of Shenzhen. Speculative-grade dollar notes sold by Chinese companies have lost 5.04 percent in 2015, the worst start to a year in Bank of America Merrill Lynch indexes.
“Regardless of whether the Kaisa coupon gets paid or not, the damage is already done,” said Michel Lowy, the chief executive officer at Hong Kong-based SC Lowy Financial (HK) Ltd., an independent bond and loan trading firm. “Clearly, external factors that can’t be analyzed may interfere with recoveries or the value of Chinese bonds, and this will need to be priced in.”
Credit markets are already feeling the strain. In March, Shanghai Chaori Solar Energy Science & Technology Co. became the first company to default in China’s onshore yuan bond market.
Closely held developer Zhejiang Xingrun Real Estate Co., based near Shanghai, collapsed that month under 3.5 billion yuan of debt.
Kaisa’s Chairman Kwok Ying Shing resigned Dec. 31, triggering a default on a HK$400 million ($51.6 million) facility from HSBC Holdings Plc. Days earlier, Chief Financial Officer Cheung Hung Kwong and Vice Chairman Tam Lai Ling also quit.
Kaisa said in a Dec. 21 filing that pre-sales at four projects in Shenzhen were blocked and hadn’t received notification from authorities despite enquiries. The developer also said routine applications for licenses, permits and approvals for eight projects in the city hadn’t been accepted.
Kaisa said earlier this week in a Jan. 7 filing that it’s “assessing the overall impact on the financial position as a result of the recent developments of the Group.”
E-mails and calls today to Kaisa’s public relations office in Hong Kong and on the mainland weren’t either immediately replied to or answered. It said yesterday it couldn’t say whether it planned to meet its bond coupon payment deadline or not.
At least three financial institutions, including banks, have applied to a court in Shenzhen for pre-litigation preservation of Kaisa’s property, local media outlet Caixin reported Jan. 7, without citing anyone.
The builder had 79.9 billion yuan ($12.9 billion) of liabilities on June 30, according to data compiled by Bloomberg, including four dollar bonds with a face value of $1.95 billion.
Its 105.6 billion yuan of assets included 9.4 billion yuan of cash.
Kaisa’s 2020 notes rose 0.2 cents to 30.183 cents on the dollar as of 9:15 a.m. in Hong Kong, climbing for a second day, according to Bloomberg-compiled prices. Its $800 million of
8.875 percent 2018 notes increased 0.03 cents to 30.289 cents.
Developers that rely on personal relations in securing land from the government are among the most at risk in China as President Xi Jinping’s fights graft and grapples with a slowing economy. While China’s central bank cut interest rates for the first time since 2012 last year to help support the real estate industry, new-home prices still fell in 67 of 70 cities in November.
Expansion in gross domestic product will cool to 7 percent this year from an estimated 7.4 percent in 2014, the slowest in more than two decades, according to analysts surveyed by Bloomberg.
“Everyone is rethinking risk right now and so are we,”
Singapore-based Brayan Lai, the head of research and money manager at One Asia Investment Partners, said. The credit hedge fund has about $200 million of assets.
S&P downgraded Kaisa to “selective default” from BB- on Jan. 5, saying there was a “high likelihood” it will renege on obligations. Moody’s Investors Service cut Kaisa three levels to
Caa3 with a negative outlook on the same day.
The company’s stock in Hong Kong fell 47 percent in December, its steepest monthly decline on record, before being suspended Dec. 29.