Offshore bond sales by Chinese developers stall as default fears rise

Offshore bond sales by mainland property developers have stalled in January as rising investor fears of a flurry of debt defaults have junked one of the usually busiest months of the year for real estate issuance.

With an estimated US$10 billion in offshore debt falling due for repayment this year and next, a bad January bodes ill for the ability of developers to refinance huge foreign borrowings.

"Offshore refinancing will become more difficult and expensive for mainland developers this year and weaker players will suffer even more," Christopher Yip, a director of corporate ratings at S&P in Hong Kong, told the South China Morning Post.

Defaults by Kaisa Group Holdings are the main reason why investors are spooked.

First Shenzhen-based Kaisa failed to repay a HK$400 million loan to HSBC at the end of last month and then defaulted earlier this month on the interest on senior notes due in 2020 after local authorities banned it from selling some projects in the city bordering Hong Kong.

It was then that offshore investors realised that they ranked behind everyone else in the queue for repayment after onshore creditors asked for court protection to freeze Kaisa's assets on the mainland.

Foreign bondholders are now watching closely how Kaisa and the Shenzhen government resolve the situation.