Bonds of Kaisa Group Holdings Ltd (佳兆業集團), a developer based in Shenzhen, plunged to record lows after the resignation of its chairman Kwok Ying Shing (郭英成) triggered a default on one of its loans.
The developer’s US$800 million of 8.875 percent notes due 2018 and sold to investors at par in March 2013 tumbled to 40.9 cents on the dollar as of 5:02pm in Hong Kong yesterday, from 66.3 cents on Wednesday, sending yields to 45.7 percent.
Kaisa was unable to repay a HK$400 million (US$51.6 million) loan from HSBC Holdings PLC on Dec. 31, a deadline triggered by the resignation of Kwok, the developer said in a Hong Kong stock exchange filing on Thursday.
The non-payment is the latest setback for Kaisa after other key executives quit and authorities in Shenzhen blocked several of its projects.
Its shares slumped 47 percent last month before being suspended from trade.
If Kaisa can not either make the payment or negotiate a waiver with its loans bankers, then cross defaults may be triggered, tipping other bonds and loans into default, according to CreditSights Inc.
Kaisa has no supplementary information beyond its official statement to the stock exchange, said Natalie Tam (譚寶瑩), an outside consultant at IPR Ogilvy & Mather.
The firm’s woes do not appear to have had a material impact on the debt of other Chinese developers, with the dollar notes of several trading only marginally lower and shares of some mainland developers rallying yesterday in Hong Kong.
New-home prices fell in fewer Chinese cities in November, official statistics released by the National Bureau of Statistics on Dec. 18 showed, after the government eased property curbs and cut interest rates for the first time since 2012, boosting demand.
“One or two isolated cases won’t result in imminent contamination to the Chinese bond market,” said Kim Jin Ha, the head of global fixed income in Seoul at Mirae Asset Global Investments Co. “Institutional investors have maintained a defensive position and the Kaisa case will definitely bring a more cautious approach to developers.”
Kaisa said in a statement that it is assessing whether its failure to immediately pay the HSBC loan plus interest might trigger cross defaults and have a material adverse impact on the company.
HSBC declined to comment due to client confidentiality.
Kaisa’s shares would remain suspended until any further announcement is made by the company, the statement said.
The builder announced on Dec. 10 that Kwok, a cofounder, would resign for health reasons at the end of the month.
Its stock was halted from trade on Monday, the day after chief financial officer Cheung Hung Kwong (張鴻光) and vice chairman Tam Lai Ling (譚禮寧) also resigned.
Kaisa has projects in more than 30 cities, including Shenzhen as well as neighboring Guangzhou and Dongguan.
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