The company’s $800 million of 8.875 percent notes due 2018 tumbled 14 cents to 32.7 cents on the dollar as of 5:20 p.m. in Hong Kong, according to Bloomberg-compiled prices, sending yields up 17 basis points to 56.6 percent. Its January 2020 notes plunged 11 cents to 32.8 cents, yielding 45.1 percent. Their 10.5 percent semi-annual coupon comes due in two days.
S&P downgraded the Shenzhen-based developer to selective default from BB- yesterday, saying there’s a “high likelihood” it will renege on its upcoming obligations after it defaulted on a HK$400 million ($51.6 million) loan to HSBC Holdings Plc on Dec. 31. Failure to pay the 2020 coupon would make Kaisa the first Chinese real estate company to default on the about $40 billion of dollar-denominated debt that developers from the nation have outstanding, according to data compiled by Bloomberg.
“The possibility of Kaisa missing the coupon on its 2020 notes is very real given their inability to repay the loan last week,” said Charles Macgregor, the head of Asian high-yield research in Singapore at Lucror Analytics Pte.
Group Liabilities
Kaisa’s stock remains suspended from Hong Kong trade.
As of Jan. 5, Kaisa had group debt liabilities of about 797.2 million yuan ($128 million) that has become “due and payable upon maturity of their term,” it said in a stock exchange filing today. The statement didn’t indicate whether those monies have been repaid. The company had 79.9 billion yuan in liabilities, according to its latest filing in June.
Moody’s Investors Service downgraded Kaisa three levels to Caa3 with a negative outlook yesterday. The loan default will weaken the company’s access to funding, senior analyst Franco Leung said in an e-mailed statement.
It will also “undermine the confidence of property buyers in Kaisa, particularly in relation to the company’s property offerings in Shenzhen, its home market,” Leung said. “Such a weakening in buyer confidence will in turn weaken Kaisa’s property sales performance.”
Kaisa also said today in its exchange filing that two of its business partners had terminated their joint ventures, citing agreement breaches, and demanded their 1.2 billion yuan back.
Sino Life
One of the business partners is Sino Life Insurance Co., according to Nomura Holdings Inc.
“The demand for repayment is surprising because Sino Life, Kaisa’s second-largest shareholder, is the joint venture partner of one of the projects,” said Annisa Lee, a credit strategist in Hong Kong at Nomura. Joint ventures are usually based on the premise that both partners are going concerns, so one often has the ability to pull out if the other is falling behind on its finances, she said.
The demands for repayment are the latest setback for Kaisa after several key executives quit and authorities in Shenzhen blocked some of its projects. Its chairman, Kwok Ying Shing, resigned last month, triggering the default on the HSBC loan, and days after Chief Financial Officer Cheung Hung Kwong and Vice Chairman Tam Lai Ling also left.
Kaisa has projects in more than 30 cities including Shenzhen as well as neighboring Guangzhou and Dongguan, according to its website. Developments include large-scale residential communities, high-end apartments and industrial parks.
The company had a total land bank of approximately 23.6 million square meters (254 million square feet) as of June 30, sufficient for the group’s development needs for the next five years, according to its interim report last year.
Kaisa had unrestricted cash of 9.4 billion yuan as of June 30, its financial statements show, and sold an equity interest in some land in Shanghai to China Vanke Co. for 1.2 billion yuan last month.
“Assuming the company has the willingness to pay, this raises concern over why it couldn’t access its cash and honor its obligations,” Nomura’s Lee said.
Full article: http://www.bloomberg.com/news/2015-01-06/kaisa-group-s-project-partners-seek-to-pull-out-demand-refund.html
To contact the reporters on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net; Christopher Langner in Singapore at clangner@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net; Andreea Papuc at apapuc1@bloomberg.net Ken McCallum