Chinese developer Kaisa suspends shares as liquidity problems spread

Shares in Chinese property developer Kaisa Group Holdings were suspended in Hong Kong on Friday, a day after the struggling company added to the growing liquidity crisis in China’s real estate sector by saying wealth management products it guaranteed had missed payments.

The company on Thursday pointed to “unprecedented pressure on its liquidity” in comments that echoed the plight of fellow developer Evergrande, which in September roiled global markets by failing to make interest payments on its offshore debt.

Kaisa stated in a Hong Kong stock exchange filing on Friday that its shares had been suspended, as were those of several of its subsidiaries, without citing a reason. Its shares fell 15 per cent on Thursday, while its bonds maturing next year are trading at 30 cents on the dollar.

The group’s woes highlight the broadening of a crisis in China’s highly leveraged real estate developer sector, where companies have come under pressure from Beijing to reduce their debts but are now face worsening liquidity issues that have already led to several defaults.

Originally centred on the world’s most indebted developer Evergrande, which missed payments on offshore bonds in September only to narrowly avoid default before grace periods expired, weakness in the sector has spread to a host of other firms in recent months as property sales slow.

In October, several smaller developers, including Fantasia Holdings Group, Sinic Holdings Group and Modern Land (China), defaulted on their dollar-denominated debts. Borrowing costs on Asia’s high yield markets have soared this week, with average yields on Chinese issuers climbing above 25 per cent — the highest level since 2009 and compared to just 10 per cent in June.

Rising borrowing costs make it prohibitively expensive to refinance for developers as their debts come due. Kaisa, which became the first of the country’s developers to default offshore in 2015 and underwent a restructuring, is one of the sector’s largest borrowers on international markets and has over $3bn coming due in the next year, according to S&P.

Its issues with wealth management product guarantees follow retail investor protests at Evergrande’s headquarters in Shenzhen in September after similar delays on products that it guaranteed.

Last week, the rating agency downgraded Kaisa to CCC+ and said it viewed the developer’s capital structure as “unsustainable” because of “the company’s sizeable near-term debt maturities, weakening liquidity, and inadequate free cash flow through 2022”.

The company was quoted in the state-backed Securities Times as saying on Thursday it had been hit by downgrades from international rating agencies and a difficult environment for real estate. In the third quarter, China’s real estate industry contracted for the first time since the start of the pandemic.