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Peggy Sito

Bonds of mainland developers will come under further downward pressure after Shenzhen-based Kaisa Group Holdings missed a deadline to pay a US$26 million bond coupon on its US$500 million bond issue, stoking investor worries about the creditworthiness of the companies, according to analysts.
This would be the first US dollar bond default by a mainland property company.
Investors were concerned that other private developers might suffer similar payment difficulties, said Edison Bian, the head of China property research at UOB Kay Hian.
"A lot of property companies which want to come to the market to raise funds will now find it more difficult," said Alan Kao, a credit strategist at Haitong International Securities
The funding costs would be very high, he added.
"I think [the sector] will be [under] a period of downward pressure," Kao said.
Bonds of developers such as Agile Property Holdings, China Aoyuan Property Group and Fantasia Holdings Group have weakened recently.
Analysts expect bigger developers with BB ratings and state-owned developers will be the beneficiaries after the Kaisa saga as investors will shift their interest from private developers.
For Kaisa, analysts did not expect to see liquidation, but a restructuring following the loan default.
"There will be a 30-day grace period for the company to resolve the issue," said Kao, who believes that creditors and debt holders will hold discussions with the company during this time. "I would expect some bondholders are already forming some alliances aimed at getting their percentage [of loans].
"In the end, there will be a restructuring instead of liquidation."
Troubles at Kaisa worsened when the company announced on January 1 it had failed to repay its loan due on the previous day from HSBC totalling HK$400 million, triggered in part by the departure of three board members including its chairman Kwok Ying-shing.
Moody's Investors Service then on January 5 downgraded Kaisa's corporate family and senior unsecured debt ratings to Caa3 from B3, with the outlook rated as negative.
"The rating downgrades reflect Kaisa's heightened default risk following the default on its HSBC loan, which in turn will likely trigger a cross-default on its offshore bonds," Franco Leung, a Moody's vice president and senior analyst, said in a report last week.
S&P credit analyst Dennis Lee said earlier the default could cause an acceleration of repayments on all its other debt.
The developer on January 7 said two project partners had demanded a refund of 1.2 billion yuan (HK$1.5 billion), alleging that the mainland developer breached cooperation agreements with them.
Meanwhile, it is understood some banks in Shenzhen have applied to the court to freeze some of Kaisa's assets.
Kaisa's problems attracted investor attention when the company was banned from selling flats at four of its property projects in Shenzhen by the city government last month.


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China property

Chinese developers' bonds come under pressure after Kaisa misses payment

Mainland property companies may now find it harder to raise funds on the market following Kaisa's bond default. Photo: Reuters

SIUD chairman Ni Jianda sees silver lining in Kaisa default

Ni jianda. Photo: May Tse

Kaisa Group denies reports it is winding up, restructuring

Kaisa has been banned or restricted from selling flats at its property projects in Shenzhen by the city's government. Photo: SCMP

City lights gleam in Shenzhen as partners of mainland developer Kaisa Group demanded a refund over two projects in the Chinese city. Photo: Bloomberg  

Kaisa woes deepen after HSBC loan default

In better days, prospective buyers line up at a Kaisa development. However, sales in Shenzhen have now been halted. Photo: Imaginechina

Shares of troubled developer Kaisa suspended from trading

Kaisa vice-chairman Tam Lai-ling has resigned "to pursue personal career development". Photo: Jonathan Wong

Business

Companies

Debt issues of mainland developers expected to come under more pressure after troubled firm's missed payment raises credit concerns


Bonds of mainland developers will come under further downward pressure after Shenzhen-based Kaisa Group Holdings missed a deadline to pay a US$26 million bond coupon on its US$500 million bond issue, stoking investor worries about the creditworthiness of the companies, according to analysts.
