All eyes on China Evergrande, Kaisa as indebted mainland developers face bond repayment deadlines

Published 6 December 2021, 8:43pm

* Evergrande has expressed its inability to repay interest on two offshore bonds

* Evergrande has until midnight on Monday to repay US$82.5 million in overdue interest on two offshore notes, while Kaisa’s US$400 million bond matures on Tuesday

All eyes are once again on embattled Chinese developers, as they face bond repayment deadlines on Tuesday.

Investors will be closely watching if China Evergrande Group, the mainland’s most indebted developer, will officially default on its public debt for the first time and whether it will be joined by another highly leveraged peer, Kaisa Group Holdings.

Evergrande, which has entered debt restructuring under the watch of the Guangdong provincial government, said last Friday that it may not be able to fulfill its pledge to guarantee payment on a US$260 million bond. It has until midnight on Monday to repay US$82.5 million in overdue interest payments on two offshore notes. Evergrande missed the payments on November 6 and had a 30-day grace period to come good on its dues.

Meanwhile, Kaisa has a 6.5 per cent, US$400 million bond maturing on Tuesday. Kaisa will have officially defaulted if it fails to wire the money to its bondholders on time as there is no grace period.

“If Kaisa defaults, it is highly likely that the Guangdong provincial government will send a working group to the company to oversee its restructuring like it did with China Evergrande,” said Zhou Chuanyi, a credit analyst with Singapore-based Lucror Analytics. She said that it was possible as Kaisa was involved in many government-backed urban renewal projects.

Beijing’s “three red lines” have made it difficult for overleveraged developers to obtain bank loans, cutting off an important source of liquidity and causing some of them to default on their offshore bonds.

On November 29, the Shenzhen-based Kaisa had appealed to bondholders to exchange the notes with a new 18-month bond. However, a majority of the bondholders rejected the offer, according to a letter seen by the Post.

On the same day, Kaisa said that if the bondholders did not agree to the exchange, it may not be able to repay the offshore notes at maturity and may have to consider an “alternative debt restructuring exercise”.

Sunshine 100 said in a filing on Monday that it will not be able to repay US$170 million of principal and more than US$8.9 million of interest on its 10.5 per cent senior notes due 2021.

The pall of gloom hanging over cash-strapped real estate companies could soon ease amid positive signs emanating from the government.

China’s central bank said on Monday that it would lower the amount of funds banks have to set aside, boosting liquidity in the financial system in a bid to support the economy and cut financing costs for businesses.

“The statements from a number of financial regulators indicate that proper financing demand of property developers will gradually be satisfied,” CICC analysts Xu Yan and Eric Zhang said in a research note.

Logan Group, Shenzhen-based developer said that it had received approval from the China Securities Regulatory Commission to issue corporate debt. Another mid-sized developer Greentown China Holdings was also given the go ahead to issue medium term notes.

“Regulators have stepped up to help developers, not only state-owned or big ones like Vanke, Longfor and Country Garden but also some mid-sized developers, with their refinancing,” said Raymond Cheng at CGS-CIMB Securities.

“It is critical in my view, as it can help them resolve their short-term debt repayment obligation in the next three to 12 months.”

These developments may give the struggling Chinese developers some time to set their house in order.

Kaisa is also offloading assets to stave off the same fate as Evergrande.

Kaisa sold an entire 38 floor of The Centre, an office tower in Hong Kong’s Central area for HK$186.4 million (US$23.9 million), according to a statement by creditor Shandong High Speed Finance to the Hong Kong stock exchange on Monday.

On November 25, it sold a site at Kai Tak, Hong Kong’s former airport, for HK$1.9 billion to a venture backed by New World Development and Far East Consortium International. The buyers also agreed to take on a loan of about HK$6 billion.

It has also put 18 property projects totalling 15.6 million sq ft in Shenzhen with a combined value estimated at 81.82 billion yuan (US$12.8 billion) up for auction.

By Pearl Liu