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Unit of Chinese developer Kaisa misses payment, source says, intensifying liquidity worries

Unit of Chinese developer Kaisa misses payment, source says, intensifying liquidity worries

FILE PHOTO: A construction site by Chinese property developer Kaisa Group is seen at an area of downtown Shanghai, February 17, 2015. REUTERS/Carlos Barria

SHENZHEN: Chinese property developer Kaisa Group Holdings Ltd missed a payment on a wealth management product (WMP) issued by a unit, a company source said on Thursday (Nov 4), adding to worries about a cash crunch at the debt-strapped firm.

Kaisa Finance in Shenzhen met with more than 100 investors earlier in the day to explain the situation, the person, who declined to be identified due to the sensitivity of the matter, told Reuters.

Kaisa, in common with other heavily-indebted Chinese property developers and conglomerates, issues high-yielding WMPs to mostly mom-and-pop investors - a popular way of borrowing that sidesteps stringent government lending restrictions.

The Shenzhen-based developer has the most offshore debt coming due over the next year of any Chinese developer after embattled China Evergrande Group, which is teetering on the brink of collapse.

Kaisa did not respond to Reuters request for comment. The Shenzhen central sub-branch of People's Bank of China could not be reached for comment.

Hong Kong-listed shares of Kaisa, which has a market value of about US$1 billion, plunged more than 14 per cent at one point on Thursday to an all-time low. Its December 2021 6.5per cent dollar bond slumped more than 17 per cent to 51.5 cents, yielding over 1,000 per cent, according to Marketaxxess.

Kaisa, which was downgraded by rating agencies last week, has around US$3.2 billion in offshore senior notes due in the next 12 months, with the next maturity worth US$400 million falling on Dec 7.

It has coupon payments totalling over US$59 million due on Nov 11 and Nov 12.

Kaisa's woes come amid concerns about a deepening liquidity crisis in the Chinese property sector, with a string of offshore debt defaults, credit rating downgrading and sell-offs in the developers' shares and bonds in recent weeks.

The worsening health of China's US$5 trillion property sector, a key economic growth driver, is testing Beijing's resolve to press on with painful structural reforms such as reducing high debt levels.

Analysts at Nomura said this week that conditions in the property sector and the broader economy are likely to deteriorate further in the coming months.

Kaisa Finance's headquarters was nearly empty on Thursday morning, with several police vehicles stationed outside the building.

The developer said late on Wednesday its October contracted sales have dropped 30.5 per cent to 8.195 billion yuan (US$1.28 billion), while sales in the first 10 months rose 23 per cent.

Reuters reported last week that Kaisa is seeking buyers for its Hong Kong-listed property management unit, Kaisa Prosperity Holdings Ltd and two residential sites in the city.

Kaisa's bigger rival Evergrande, once China's top-selling developer, is reeling under more than US$300 billion in liabilities, fuelling worries about the impact of its fate on the world's second-largest economy as well as on global markets.

Evergrande narrowly averted a default for the second time last week, yet it faces another hard deadline on Nov 10 for more than US$148 million in coupon payments that had been due on Oct 11.

Separately, smaller player Yango Group, which is seeking to exchange its dollar bonds to help avoid a default, has reached an agreement with investors in China to extend principal payments on asset-backed securities, two sources told Reuters on Thursday.

Investor concerns about the broadening impact of the liquidity crunch hitting Chinese developers sparked heavy selling of other developers' bonds in onshore markets on Thursday.

Exchange-traded bonds of onshore units of developers Yuzhou Group and Shimao Group plunged more than 20 per cent, triggering trading halts.

Refinitiv data showed dollar bonds from Ronshine China Holdings, Zhenro Properties Group and Guangzhou R&F falling more than 10 per cent.

Source: Reuters

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