Fresh jitters in China’s property sector after Kaisa shares suspended

Halt in trading comes amid concerns developer with huge offshore debts may not meet a $400m repayment deadline

Trading in shares of the embattled Chinese developer Kaisa Group Holdings have been suspended on the Hong Kong stock exchange, prompting fresh concerns about the financial stability of the country’s indebted property sector.

The suspension on Wednesday comes after Kaisa was reportedly to be struggling to make a loan repayment of $400m (£301m) by the deadline of Tuesday night in the US, Reuters said, citing a source with direct knowledge of the matter.

Panicked investors offloaded shares amid concern that some of the biggest names connected to China’s unravelling property boom might also be close to collapse.

Speculation that China Evergrande, the world’s most indebted property developer, will also be unable to access fresh loans to pay down debt sent shares in the company to a record low.

Evergrande has been selling assets in recent months to raise the money it owes to customers, investors and suppliers after borrowing £300bn to finance many of the 1,300 developments it has in more than 280 cities across China.

The Chinese government sparked a crisis within the property industry when it launched a drive last year to curb excessive debt among real estate firms as well as rampant consumer speculation.

Companies that had accrued huge debt to expand found the money taps turned off and began struggling to complete projects, pay contractors and meet domestic and foreign repayments.

Kaisa, the 27th-largest Chinese real estate firm in terms of sales, became the latest company to spook investors when it announced on Friday that it had failed in its attempt to secure a debt swap that would have bought it crucial time. A debt swap involves giving creditors shares in the company instead of repaying the debts.

On Wednesday morning, the firm announced it was suspending trading in Hong Kong, where it is listed, “pending the release by the company of an announcement containing inside information”.

It is the second time Kaisa has suspended trading in the last month. Its shares have lost 75% of their value this year.

Kaisa last month announced a plan to delay the repayment timeline for some of its debts, offering an exchange for at least $380m of bonds, which would have given it room to find money further down the line.

But the offer failed to win the 95% approval from bondholders needed for the plan to go ahead. Some bondholders sent a formal offer of forbearance on the debt to give Kaisa more time to repay, but it was not clear on Wednesday whether Kaisa would accept.

The company has about $11.6bn of dollar-denominated bonds outstanding. It previously defaulted on a dollar debt in 2015, becoming the first Chinese developer to do so.

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Analysts at the credit ratings agency S&P predicted last month that a default by Kaisa was inevitable because the developer’s liquidity appeared to be so depleted. “We believe nonpayment risk is high and could ultimately lead to debt restructuring,” they said. “A default scenario is inevitable within the next six months.”

The only Chinese developer with more offshore debt is Evergrande, which set off the current confidence crisis in September. The company failed to make payments of $82.5m on some US dollar bonds at the end of a month-long grace period on Tuesday, setting the stage for a massive default.

Most of the £300bn debt is in China, with only $23bn denominated in dollars. As a result, analysts expect that Evergrande will now be restructured or broken up in some way and that its huge debts will be spread through the Chinese financial system.

Reuters and Agence France-Presse contributed to this report.


Martin Farrer and Phillip Inman

The GuardianTramp

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