Shares of Chinese property developer Kaisa Group Holdings were suspended in Hong Kong on Friday, a day after the troubled company added to the growing liquidity crunch in China’s property sector by saying its wealth management products had not made payments.
The company on Thursday cited “unprecedented pressure on its liquidity” in comments that reiterated the plight of fellow developer Evergrande, which rattled global markets in September with its failure to make interest payments on its foreign debt.
Kaisa said in a Hong Kong stock exchange on Friday that its shares, as well as those of several of its subsidiaries, have been suspended, without giving a reason. Its shares fell 15 percent Thursday, while its bonds due next year are trading at 30 cents to the dollar.
The group’s woes highlight the widening crisis in China’s highly leveraged real estate development sector, where companies have come under pressure from Beijing to reduce debt but now face worsening liquidity problems that have already led to several defaults.
Originally centered on the world’s most indebted developer Evergrande, which defaulted on external bond payments in September only to avoid defaults before grace periods expire, weakness in the sector has spread to a host of other companies in recent months as property sales have slowed.
In October, several smaller developers, including Fantasia Holdings Group, Sinic Holdings Group and Modern Land (China), defaulted on their dollar debts. Borrowing costs in Asia’s high-yield markets have risen this week, with the average yield on Chinese exporters rising above 25 per cent – the highest level since 2009 and compared to just 10 per cent in June.
Higher borrowing costs make refinancing very expensive for developers as their debts mature. Kaisa, which became the country’s first developer to default overseas in 2015 and has undergone a restructuring, is one of the sector’s largest borrowers in international markets and has more than $3 billion due next year, according to S&P.
Its issues with the guarantees of wealth management products come in the wake of protests by retail investors at Evergrande’s Shenzhen headquarters in September after similar delays to products it had insured.
Last week, the rating agency downgraded Kaisa to CCC+ and said it considers the developer’s capital structure to be “unsustainable” due to the company’s “large near-term debt maturities, poor liquidity, and insufficient free cash flow through 2022.”
The company was quoted by the state-backed Securities Times as saying on Thursday that it was hit by cuts 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 beginning of the epidemic.