Stoppage of Trading for Chinese Developer Kaisa Stirs Up New Scares in Real Estate Sector

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Trading in struggling Chinese developer Kaisa Group Holdings has been suspended on the Hong Kong Stock Exchange, raising further concerns about the financial stability of the country’s huge real estate sector.

Wednesday’s suspension comes as Kaisa was unlikely to repay a $ 400million (£ 301million) dollar bond before Tuesday night’s deadline in the United States, Reuters said, citing a source directly informed of the case.

The Chinese government sparked a crisis in the real estate industry when it launched a campaign last year to curb excessive indebtedness by real estate companies as well as widespread consumer speculation.

Companies that had accumulated huge debt to grow suddenly found the taps closed and began to struggle to complete projects, pay contractors, and meet domestic and foreign repayments.

Kaisa, China’s 27th largest real estate company by sales but one of its most indebted, became the latest company to scare investors when it announced on Friday that it had failed in a debt swap offer that would save him crucial time. A debt swap involves the business giving securities to creditors instead of paying off debts.

On Wednesday morning, the firm announced that it was suspending operations in Hong Kong, where it is listed, “pending the publication by the company of an advertisement containing inside information”.

This is the second time the company has suspended operations last month. Its shares have lost 75% of their value this year.

Kaisa announced a plan last month to delay the repayment schedule of some of his bonds, offering an exchange of at least $ 380 million in notes, which would have allowed him to find the money later.

But the offer did not get the approval of 95% of bondholders needed to continue the plan. Some bondholders sent a formal forbearance offer on the debt to give Kaisa more time to repay, but it was not clear on Wednesday whether Kaisa would agree.

The company currently has some $ 11.6 billion in dollar banknotes in circulation. It had already defaulted on dollar debt in 2015, becoming the first Chinese developer to do so.

S&P analysts predicted last month that a Kaisa default was “inevitable” because the company’s cash flow seemed so depleted. “We believe the risk of non-payment is high and could ultimately lead to debt restructuring,” they said. “A default scenario is inevitable in the next six months. “

The only Chinese developer with more offshore debt is China Evergrande, which sparked the current crisis of confidence in September.

China Evergrande failed to make payments of $ 82.5 million on certain U.S. dollar bonds at the end of a one-month grace period on Tuesday, paving the way for a massive default by the company, who has debts of 300 billion dollars.

Most of the debt is in China with just $ 23 billion denominated in dollars. As a result, analysts expect Evergrande to be restructured or dismantled somehow now and its huge debts spread across China’s financial system.

China Evergrande shares were down 1% in Hong Kong on Wednesday.

With Reuters and Agence France-Presse


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