Chinese developer Kaisa faces default as debt swap plan rejected

BEIJING: Embattled Chinese developer Kaisa Group is facing a default after saying on Friday it had failed in a bid for a debt swap that would buy it crucial time, warning there was “no guarantee” it would be able to meet its payment obligations.

The company is one of several real estate firms that have plunged into crisis over the last year after China embarked on a regulatory drive to curb speculation and leverage, cutting off a crucial avenue for accessing cash.

The highest profile of them is China Evergrande, which is drowning in a sea of debt worth $300 billion, and is struggling to meet its own obligations.

The firm’s woes have fanned concerns about the whole property sector, which makes up a substantial part of the world’s number two economy.

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

But the offer failed to win the 95 per cent approval from bondholders needed for the plan to go ahead.

In a statement on Friday, the firm said it will explore solutions, “including but not limited to renewal and extension of borrowings and disposing of assets”.

But “there is no guarantee” it would be able to meet its repayment obligations under the existing notes at maturity. It added that it has $400 million of dollar notes maturing on Tuesday.

Its share price tumbled 8 per cent in Hong Kong on Friday morning on the news.

Failing to repay the principal on the notes will be considered a default, and risks triggering cross default on its other debt.

Evergrande, which is China’s second-largest developer by volume, has so far managed to avoid default but challenges remain.

An Evergrande unit has bond coupons worth $82.5 million in total due Monday, when the grace period ends, Bloomberg reported this week.

Last Friday, founder Hui Ka Yan sold 1.2 billion Evergrande shares for the equivalent of $344 million, cutting down his stake in the firm to 68 per cent from 77 per cent.

Beijing regulators have urged the tycoon to use his personal wealth to finance Evergrande’s debt struggles.

The same day, its auto unit said that it had returned undeveloped land worth some 1.2 billion yuan ($188.4 million), and is in active talks with buyers to potentially dispose of some assets.

With the Chinese developers struggling to meet their debt obligations, Beijing has shown signs of stepping back from its tough line on the property industry.

Last month, the southwestern city of Chengdu also announced measures to make it easier for the companies to sell properties, making it the first to loosen restrictions on the embattled sector.

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